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Pre Market Briefing, including S&P downgraded US credit rating

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UK Market Snapshot

UK markets finished lower on Friday, led by declines in banking and commodity sector stocks, amid rising concerns over the health of the global economy. Royal Bank of Scotland tumbled 6.9%, after the bank posted a wider-than-estimated first-half loss. Amongst other banks, Lloyds Banking, Barclays, HSBC Holdings and Standard Chartered retreated between 1.7% and 6.1%. Mining sector stocks, Rio Tinto, ENRC, Vedanta Resources, BHP Billiton, Kazakhmys and Xstrata slid between 3.2% and 4.6%, as the risk appetite amongst investors declined. BP dropped 2.3%, after the company began talks with Transocean Ltd. over the 2010 Gulf of Mexico oil spill; Transocean Chief Executive Officer Steven Newman, on Thursday, reiterated that BP is responsible for all costs and fines. Peers, Royal Dutch Shell and BG Group declined 3.9% and 3.8%, respectively. The FTSE 100 shed 2.7%, to close at 5,247.0, while the FTSE 250 edged down 2.4%, to settle at 10,313.1.

US Market Snapshot

US markets closed mostly lower on Friday, amid mounting worries that the nation would lose its AAA credit rating from Standard & Poors, for the first time in its history. Bank of America dropped 7.5%, after an analyst cut its rating to Market perform from Outperform. Amongst other banks, Citigroup and JPMorgan Chase slid 3.9% and 0.8%, respectively. Energy sector stocks, Range Resources, Chesapeake Energy and Cabot Oil & Gas slipped between 0.9% and 4.0%. Mining sector stocks, Freeport-McMoRan Copper & Gold, Alcoa and Newmont Mining dropped between 0.1% and 1.7%, in line with a fall in metal prices. Industrials, Boeing and United Technologies Corp retreated 0.5% and 0.3%, respectively, on economic growth concerns. The DJIA edged up 0.5%, to settle at 11,444.6, while the NASDAQ slid 0.9%, to close at 2,532.4. The S&P 500 slipped 0.1%, to settle at 1,199.4.

Europe Market Snapshot

Other European markets finished lower on Friday, as fears of a faltering global economic recovery and deepening European debt crisis clouded upbeat monthly jobs data from the US. Chemical and construction sector stocks, BASF Se and HeidelbergCement declined 4.7% and 0.6%, respectively, amid reports that industrial production in Germany, unexpectedly fell in June. Allianz Se dropped 4.5%, after the company reported a weaker-than-expected second-quarter profit. Peers, Munich Re and Axa slid 2.8% and 1.3%, respectively. Carmakers, Daimler and Volkswagen retreated 4.3% and 3.9%, respectively. Banks, Deutsche Bank and Societe Generale slipped 1.6% and 1.0%, respectively, as risk appetite amongst investors declined. The FTSEurofirst 300 index declined 1.8%, to close at 975.0. Among other European markets, the German DAX Xetra 30 edged down 2.8%, to close at 6,236.2, while the French CAC-40 shed 1.3%, to settle at 3,278.6.

Asia Market Snapshot

Markets in Asia are trading lower this morning, amid concerns over the pace of global economic recovery, after Standard & Poors cut the US sovereign credit rating. In Japan, Mitsubishi UFJ Financial is trading 3.4% lower, the company holds substantial amount of the US bonds. Exporters, Sony, Toyota Motor and Canon are trading 3.7%, 1.8% and 1.8% lower, respectively, as the dollar depreciated against the yen. In Hong Kong, Cnooc is trading 4.2% lower, tracking a fall in crude oil prices. In South Korea, KT Corp is trading 3.0% lower, amid reports that the company is in talks with the South Korean regulator on lowering mobile-phone rates. The Nikkei 225 index is trading 3.5%, lower, at 9,178.0. Hang Seng index is trading 4.6%, down, at 20,139.5, while the Kospi index is trading 3.4%, lower, at 1,878.8.

Commodity, Currency and Fixed Income Snapshots

Crude Oil


At 0333GMT today, Brent crude oil one month futures contract slid 2.64% or $2.89, to trade at $106.48 per barrel. On Friday, the contract climbed 1.98% or $2.12, to settle at $109.37 per barrel, amid reports that non-farm payroll employment in the US increased by 117,000 jobs in July, following an upwardly revised increase of 46,000 jobs recorded in June, easing concerns over US economic growth and thus improving outlook for energy demand.

Gold

At 0333GMT today, gold futures contract jumped 2.85% or $47.10, to trade at $1,698.9 per ounce, as the dollar weakened against other major currencies, and as investors remained worried about a recession in the US economy, increasing the demand for the safe haven asset. On Friday, the contract lost 0.43% or $7.20, to close at $1,651.8 per ounce.

Currency

At 0333GMT today, the EUR strengthened against the USD, gaining 0.34%, to trade at $1.4325. On Friday, the EUR gained 1.44% versus the USD, to close at $1.4277, after S&P downgraded the US credit rating to AA+, and amid reports that the European Central Bank (ECB) would begin Euro intervention by buying Italian bonds starting today.

At 0333GMT today, the GBP rose against the USD, advancing 0.12%, to trade at $1.6411. On Friday, the GBP strengthened against the USD, gaining 0.95%, to close at $1.6392, after Standard & Poor's downgraded the US sovereign credit rating by one notch to 'AA+' from 'AAA' with a negative outlook.

Fixed Income

In the US, long term treasury prices fell on Friday, pushing the yields on 30-year bond higher, after S&P cut the US credit rating to AA+ for the first time ever, and after the ECB announced that it would actively implement bond purchases. On Friday, yields on 10-year notes increased 11 basis points to 2.58%, while yields on 2-year notes increased 1 basis point 0.28%. Meanwhile, 30-year bond yields increased 12 basis points to 3.82%.

Key Economic News

UK output price inflation rose in July


On an annual basis, the output price inflation in the UK rose to 5.9% in July, the highest since October 2008, and compared to a rate of 5.7% recorded in June. Market had expected the annual output price inflation in the UK to rise to 5.8% in July. Additionally, on an annual basis, the core output price inflation in the UK rose to 3.3% in July, compared to a rate of 3.2% recorded in June.

UK house prices rose in July, indicates Halifax

Halifax reported that, on a monthly basis, the house prices n the UK rose 0.3% in July. Additionally, the housing prices in the UK increased 0.5% in the three months to July.

German industrial output fell unexpectedly in June

On a monthly basis, the industrial output in Germany declined unexpectedly by 1.1% in June, following a 0.9% rise recorded in the previous month. Market had expected the industrial output in Germany to rise 0.1% MoM in June. Additionally, on an annual working-day adjusted basis, industrial output growth in Germany slowed to rate of 6.7% in June, compared to a rate of 7.2% recorded in May.

French trade deficit narrowed in June

The French trade deficit narrowed to 5.59 billion in June, compared to a trade deficit of 6.41 billion recorded in May.

Swiss annual inflation slowed unexpectedly in July


On an annual basis, the Swiss consumer price inflation slowed to 0.5% in July, following a rate of 0.6% recorded in June. Market had expected the Swiss annual consumer price inflation to rise to 0.7% in July.

Swiss foreign currency reserve declined in July

Swiss National Bank's currency reserves slipped to CHF182.08 billion in July, compared to foreign currency reserves of CHF196.3 billion posted in June.

S&P downgraded US credit rating

Standard & Poor's downgraded the US sovereign credit rating by one notch to 'AA+' from 'AAA' with a negative outlook.

US job growth exceeded market estimates in July

The non-farm payroll employment in the US increased by 117,000 jobs in July, following an upwardly revised increase of 46,000 jobs recorded in June. Market had expected the non-farm payroll employment in the US to rise by 85,000 jobs in July, compared to the increase of 18,000 jobs originally reported for the previous month. Meanwhile, the unemployment rate in the US declined to a rate of 9.1% in July, following an unemployment rate of 9.2% recorded in June. Meanwhile, average hourly earnings rose by $0.10 to $23.13 in July.

US consumer credit rose in June

The consumer credit in the US increased by $15.5 billion in June, the biggest gain since August 2007, following a $5.08 billion increase recorded in May.

Canadian building permits rose in June

On a monthly basis, the building permits in Canada increased 2.1% in June, following a 20.9% increase recorded in May. Additionally, on an annual basis, the building permits in Canada declined 0.5% in June.

Canadian unemployment rate declined in July

The unemployment rate in Canada declined to 7.2% in July, the lowest since December 2008, and compared to a rate of 7.4% recorded in June.

Canadian Ivey PMI declined sharply in July


On a seasonally adjusted basis, the Ivey Purchasing Managers Index (PMI) in Canada declined to a reading of 46.8 in July, following a reading of 59.9 posted in June. Market had expected the PMI to fall to a reading of 59.4 in July.

Japanese leading index rose in June

The leading index in Japan rose to a reading of 103.2 in June, following a reading of 99.4 posted in May. Market had expected the leading index in Japan to rise to a reading of 103.4 in June. Additionally, the coincident index rose to a reading of 108.6 in June, following a reading of 106.1 recorded in the previous month. Market had expected the coincident index to rise to a reading of 108.7 in June.

Japanese current account surplus declined in June

The current account surplus in Japan fell to 526.9 billion in June, compared to a current account surplus of 590.7 billion recorded in May. Market had expected the current account surplus in Japan to rise to 652.8 billion in June. Additionally, the trade surplus in Japan stood at 131.5 billion in June, compared to a trade deficit of 772.7 billion recorded in the previous month.

Japanese bank lending declined in July

On an annual basis, the bank lending in Japan declined 0.6% to 392.745 trillion in July.

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