Need To Know News

* BOE minutes expected to show 1-7-1 vote split, with Besley in favour of rate hike

* UK July public sector nb seen at GBP -5.0bln (median -4.3), versus -6.3bln

* European calendar also has U.K. July M4 and Aug CBI manufacturing orders survey

* US calendar Thursday has initial claims, July leading indicators and August Philly Fed

* Canadian calendar has June retail sales, July leading indicator and 2yr bond auction

* Japan June all industry index fell 0.9% m/m, a further reflection of recent faltering

* Asia stocks firmer, mostly; China surge on speculation about $58bln stimulus plan

* USD on softer bias amid firmer oil prices, sharp Wall St losses on financial angst

* FED’s Lacker: rates shouldn’t go lower, credit stresses shouldn’t tie Fed’s hands

* FED’s Fisher: must be poised to act if slowing growth fails to curb inflation

* Freddie Mac priced $3 bln 5-year ref note at +113 bp as per price guidance

* US treasury yields rebounded Tuesday on hot core PPI reading, curve steepened

* Big US bank failure likely, worst of financial crisis yet to come, Harvard’s Rogoff

* NYMEX crude holds firm after Tuesday’s $4-plus short-covering rally from sub-$112

US shares fell sharply Tuesday on continued concerns about the health of Fannie Mae and Freddie Mac and the highest US producer price increase in 27 years. The Dow dropped 1.1%, the Nasdaq lost 1.4%. The S&P shed 0.9%.

Asian shares were mixed, with new growth improvement polices from Beijing supporting Chinese stocks. The Nikkei was off 0.1%. The ASX fell 3.6%. The Hang Seng advanced 1.6%.

The greenback gave back some of its recent gains on fears the US economy is tanking. EUR/USD was down 12 pips to 1.4762. Cable fell 27 pips to 1.8641. USD/JPY rose 20 pips to 109.90. AUD/USD added 4 pips to 0.8720.

European shares were expected to open higher. The DAX future was up 0.4%. The CAC future advanced 0.6%. Minutes from the BOE and UK July public finance data (8:30 GMT) could prod markets in early trade. The data will be reported live on Need to Know News’ Scream Audio.

Bonds were little changed to lower in early trading. The Bund future fell 10 ticks to 114.23. The 10yr Gilt yield was flat at 4.59%. The 10yr Bund yield was unchanged at 4.17%. The 10yr JGB yield rose 1bp to 1.44%. The 10yr T-note yield was up 1bp at 3.85%.

Oil moved ahead on dollar weakness. WTI rose 54 cents to $115.07. Brent was up 47 cents to $113.72. Gold rose $5 to $821.80.

* German July PPI surged 2.0% m/m and 8.9% y/y (median 7.5% y/y), a 26yr high

* European calendar also has German August ZEW seen to improve to -63.5 (median -62.0)

* US July PPI projected to surge 0.8% m/m (median 0.6%), but core up 0.2% m/m

* US calendar also has July housing starts, forecast to fall 8.1%, and Fedspeak

* BoJ kept rates at 0.5%, cut economic assessment, cautious on upside of prices

* Asian equities slid on financials, angst U.S. housing woes to slow global economy

* RBA minutes: case could be made for early rate cut, supportive of September ease

* NZ Q2 PPI input up 5.6% q/q, PPI output up 3.5% q/q — stronger than expected

* US equities traded sharply lower, led by 19% plunge on Fannie and Freddie

* US Treasury yields sank as stocks slumped on GSE news; curve traded steady

* US NAHB housing market index held at record low 16 in August, as expected

* NYMEX crude extended below $113 in Asia as storm Fay misses Gulf fields

US equities closed sharply lower amid worries that the banking and housing crisis could worsen. The Dow was off 1.6%. The S&P and Nasdaq lost 1.5%. Resurgent concerns that Washington will bail out Fannie Mae and Freddie Mac hammered the financial sector, and the declines were exacerbated by reports Lehman Brothers is scrambling to avoid a massive loss.

Worries about the US pushed down Asian shares, which flirted with 2yr lows. The Nikkei dropped 2.3%. The ASX fell 2.4%. The Hang Seng slid 0.5%.

The greenback showed continued strength despite the weakness in the US financial sector. EUR/USD fell 49 pips to 1.4643, a 6mth low. Cable was down 99 pips to 1.8547. USD/JPY rose 16 pips to 110.26.

European stock indices are seen sharply lower at the open. The DAX future was off 1%. The CAC future dropped 1.3%. German July producer prices grew 8.9% y-o-y, the highest jump since Oct-1981. August German business sentiment indicators from the ZEW are expected to show continued pessimism about Europe’s largest economy. Need to Know News’ Scream Audio will broadcast the data live at 9 GMT.

Bonds were mostly higher in early trading amid equity weakness. The 10yr Gilt yield fell 3bps to 4.57%. The 10yr Bund yield was little changed at 4.13%. The 10yr JGB yield dropped 1bp to 1.43%. The 10yr T-note yield was down 1bp to 3.81%.

Oil eased as Tropical Storm Fay headed away from crude production sites in the Mexican Gulf. WTI dropped $1.03 to $111.84/bbl. Brent was off $1.01 to $110.93. Gold fell $15.30 to $790.40.

Citigroup earlier cut its forecast for the S&P 500 and Dow Jones Industrial Average by 5% each, to 1475 and 13,250. If one were not looking at the futures markets, one could be forgiven for thinking the f/cast was for lower levels. Not at all — this incredibly optimistic forecast means the S&Ps will RALLY 175 handles by year-end, and the Dow will rally by nearly 1,600 points.

It’s difficult to envision this magnitude of recovery. What could spark such a rally over the remaining 4.5 months of this year?

First, one would have to disregard the credit crisis and believe that the FED and TSY will backstop everything, so the mortgage market might unfreeze and the 11-plus months’ supply of homes might be whittled down to something like 9 months.

Second, the damage done to the economy by a doubling of Oil prices in a year would have to be forgotten, as would the attendant consumer credit situation. Jobs would have to stop disappearing at the 40k-per-month pace they’ve set thus far this year.

In short, we’d have to magically transport to a better place and time, leaving behind all memories of the last year. How likely is that? About as likely as 1475 SPX.

Most markets drifted quietly in the absence of any major economic data or other stimuli.

Major stock markets, including the FTSE and DAX, included showed gains ranging from 0.18% up to 0.46% in the case of the CAC. 

USD corrected some of its recent sharp gains versus most other currencies. Commodity markets also corrected, and it seemed that an approximate 1% jump in oil prices, on news of supply disruptions in the Gulf of Mexico, was the catalyst for the dollar move. EUR-USD has steadied in 1.47s after retreating from intraday highs near 1.4770, which approximately marked the two thirds recovery point of Friday’s losses.

Unlike other pairings, the dollar has failed to reach or break the low it saw against the euro on Friday. The outperformers today have been the AUD and NZD, having been the biggest underperformers in recent weeks. GBP-USD gave back most of an Asia-session gain as the London market reacted to the latest dour house price data.

Latest dollar rates (all bid) GBP 1.8672; AUD 0.8721 Swissy 1.0978 Euro 1.4709

US Treasurys edged higher in quiet trading in London as the corporate bond market remained very quiet amid the summer lull.  The Treasury yield surve steepened, with the yield spread between the 2 and 1 year sectors widening by 1.5 basis points to 147.0 basis points from 145.5 on Friday.

Spot gold traded at USD 795.40, up 1.3% from late Friday in New York.    

* UK Rightmove house asking prices fell 2.3% m/m in August vs. 1.8% dip in July

* European calendar has EZ June sa trade, expected at Eur 0.5 bln

* US calendar quiet; NAHB housing market index forecast at 16 for August

* USD corrected some of its recent gains; oil prices rose amid tropical storm concerns

* Asian equities mixed, Japan sustained gains while other indices gave them back

* Singapore July non-oil domestic exports -5.7% y/y, symptomatic of global softness

* FED’s Evans: tough challenges posed by economic weakness and inflation risk combo

* US Treasuries rose on reinvestment demand, ongoing commodity rout, USD rally

* US TIC capital inflows rebounded $51.1 bln in June, below median vs $12.3 bln May

* NYMEX crude firmer amid production closure in Mexican Gulf on hurricane warning

US equities closed mostly higher Friday as falling commodity prices sparked hopes consumers could be willing to spend more. The Dow and S&P were up 0.4%. The Nasdaq closed slightly lower.

Asia stocks were mostly higher after investors piled into shares on some of the cheapest valuations in more than a decade. The Nikkei rose 1.1%. The ASX added 1.9%. The Hang Send fell 1.5%. Mining giant BHP Billiton rose 1.4% after posting record annual earnings of $15.4bln.

The greenback took a breather from recent gains on consolidation and a rise in oil prices. EUR/USD was up 62 pips at 1.4747. USD/JPY fell 34 pips to 110.17. Cable added 32 pips to 1.8692. The Aussie rose 72 pips to 0.8732.

European shares were expected to be flat to lower at the open. The DAX future was down 0.1%. The CAC future rose 0.1%. Little economic data is scheduled for release in Europe and the US.

Bonds were mixed in early trading. The 10yr Gilt yield was down 1bp at 4.51%. The 2yr yield was up 1bp at 4.58%. The 10yr Bund yield added 2bps to 4.16%. The 2yr Schatz yield fell 1bp to 3.99%. The 10yr JGB yield wsa off 2bps at 1.44%. The 10yr T-Note yield was little changed at 3.85%.

Oil pushed higher on a report OPEC could cut crude output and concerns Tropical Storm Fay may hit production in the Gulf of Mexico. WTI was up 1.2% to $115.12/bbl. Brent rose 1.3% to $114.02.

European equities traded higher as exporters and industries that use oil products received support from slumping crude prices and a weaker euro. The FTSEurofirst 300 rose 0.4%. The DAX was up 0.3%. The CAC soared 1% on the back a 2.3% rise in Sanofi-Aventis after Warren Buffet’s Berkshire Hathaway increased its stake in the drugmaker. The commodity-laden FTSE 100 underperformed, moving up only 0.1%.

The greenback rally continued unabated amid further downward adjustments to European growth prospects. The head of the IFO institute lowered his expectation for 2008 German GDP expansion to 2% from 2.4%. Deutsche Bank said Eurozone GDP would only grow 1.2% this year and nearly flatline in 2009. EUR/USD was off 0.7% at 1.4721 after touching an 18mth low. Cable fell 0.7% to 1.8570, hitting a 2yr low in the morning session. USD/CHF was up 0.5% at 1.0977.

Bonds were mixed, with UK debt following equities higher as flagging economic optimism sparked rate cut hopes. The 10yr Gilt yield dropped 3bps to 4.61%. The 2yr yield was off 2bps to 4.54%. The 10yr Bund yield rose 1bp to 4.21%. The 2yr Shatz yield was flat at 4.03%. The yield on the 10yr JGB was up 3bps to 1.46%. The 10yr T-note yield was little changed at 3.90%.

Commodities were racing south as fears of declining demand due to increasing economic weakness erased support. WTI was off $1.52 to $139.49. Brent fell $1.36 to $112.32. Gold was off $22 to $792.50.

* European calendar lean today, will focus on US data; Italy closed for holiday

* US August Empire State index expected to moderate to -2.0 (median -3.1) from -4.9

* US calendar includes July production, August Michigan sentiment, & Fedspeak by Evans

* Canadian calendar awaits June manufacturing shipments, forecast +1.0% (median 1.1%)

* Asian equities mixed as resource stocks fell, financials rose, growth outlook uncertain

* USD buoyed by the broad commodity market weakness; AUD & NZD soft

* China January-July fixed investment up 27.3% (median 26.9%); rounds out solid data month

* NZ retail sales jumped 0.9% in June, above median; Q2 sales volume -1.5% q/q

* FED’s Stern: Economy constrained until crisis passes, inflation should abate

* Treasury yields found floor after equity rebound, following volatility on hot CPI

* ARS settlement: major US banks nearing a deal on auction rate securities

* Gold fell below $800 for first time since December as USD strengthens; silver down 11%

* RJ/CRB index slumped 1.5% to 387 with crude, gold weakness; 380 key support

* NYMEX crude sub-$114 on signs of weakening global growth, demand destruction