Market wrap
Markets stabilised in thin conditions, the US on holiday, but were jolted by further ratings news at the NZ open this morning. Standard & Poor's cut the EFSF (Eurozone bailout fund) from AAA to AA+ with a developing outlook (which means it may be revised up or down within the next two years). Until that announcement, Friday's Eurozone ratings downgrades appeared to have little residual impact. One indicator which was closely watched was the French auction of EUR 8.6b notes up to 12mths maturities. It went well enough, the 12mth awarded yield 5bp below the previous, although the total raised was slightly below the target of EUR 8.7b. Most Eurozone peripheral yields were well behaved (Portugal the notable exception with the 10yr yield up 200bp to 14.48% - a Euro era high), probably to due to rumoured ECB buying of Italian and Spanish bonds. The ECB slightly increased its buying last week from EUR 1.1b to EUR 3.8b and will sterilise the operation by off ering 7-day deposits. European equities (Eurostoxx 50) closed 1.0% higher and S&P500 futures were up 0.2% before the EFSF news. US 10yr treasury not futures implied a 3bp increase in yield overnight.
The US dollar index is little changed. EUR rallied from 1.2630 to 1.2669 during the London session, slipping to 1.2660 early NZ on the EFSF news. USD/JPY slipped from 76.87 to 76.70. AUD rose from 11.0274 to 1.0338 late London, slipping to 1.0313 on the EFSF. NZD rose from 0.7917 to 0.7967 and slipped to 0.7944. AUD/NZD rose from 1.2960 to 1.3015 before falling to 1.2970
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