Franc plunges after SNB pegs it to euro. The Swiss franc was -7.5% vs. the dollar and -7.9% vs. the euro midday in Europe after the Swiss National Bank set a minimum exchange rate of 1.20 francs per euro to counter the strength of the currency and its safe-haven status. Citing "an acute threat to the Swiss economy," the SNB said it "is prepared to buy foreign currency in unlimited quantities." The SNB's move could lead to pressure on the Bank of Japan should investors flock to the yen in reaction.
Italian workers strike ahead of budget debate. Seemingly unworried about the effects of Italy's budget farce on the markets, workers are carrying out an eight-hour general strike to protest the government's €45.5B austerity proposals, which are due to be debated in the Senate today. Despite the union action, the center-left opposition will allow a swift vote and approval could come tomorrow before going to the lower house. Italian 10-year bond yields, which soared 28 basis points yesterday to 5.57%, fell to 5.48% following the SNB's franc-euro announcement. However, analysts said yields could head back up to above 6% on concerns about Italy's commitment to reducing its debt.
Opposition to bailouts grows in Germany. In a preliminary vote, 25 members of Germany's ruling coalition yesterday refused to back a draft bill that would strengthen the EU rescue fund. The measure is expected to pass in parliament due to opposition support, but should Angela Merkel not get a majority with just the coalition, she might be forced to call national elections. Her margin is 19. The vote followed the CDU suffering its worst result ever in a local election in Merkel's home state. To show she will be strict about the bailout, Merkel told the CDU party that Greece will not receive aid payments due this month unless it meets the conditions of its rescue.
EU shares get technical bounce as gold sets fresh record. European shares were broadly higher in midday trading after being flayed yesterday on the EU's debt fears, while U.S. stock futures pared earlier losses, although traders said the rally was purely technical. The renewed sovereign crisis led to gold hitting a fresh record high of $1920.20 an ounce (see below for more market details). German bund yields touched a record low of 1.799% but were up for the day by midday.
Bank deposits at ECB surge to €166.85B. Overnight deposits at the ECB jumped to €166.85B ($235.23B), reaching their highest level in more than a year as banks show increasing nervousness about the EU debt crisis. The figure was up from a 2011 peak of €151.1B on Friday.
State AGs offer mortgage deal to banks. In return for a multibillion dollar payment, state prosecutors have offered large U.S. banks a deal over inappropriate foreclosure practices that could effectively release them from legal liability for any misconduct relating to mortgage bonds, sources say. However, the banks want the proposals to be expanded and have rejected the offer; New York, Delaware, Massachusetts and Nevada, which are investigating securitization matters, also oppose it. The banks involved are Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC), Citigroup (NYSE:C) and Ally Financial.
Funding gap in U.S. pensions wider than during crisis. Falling equity markets and interest rates have caused the funding deficit in the pension plans of S&P 500 companies to hit $388B, a study from Credit Suisse shows. The hole is larger than at the peak of the financial crisis, with pension schemes now holding assets worth just 77% of their liabilities. At Lockheed Martin (NYSE:LMT), Ford (NYSE:F) and six other firms, the gap represents over 25% of their market capitalizations.
Obama jobs package to include infrastructure projects. Barack Obama yesterday gave a preview of the job-creation package he is formulating, telling a Labor Day rally in Detroit that proposals would include an extension of payroll tax cuts, as well as projects for rebuilding roads, bridges and other infrastructure. Obama is due to provide details of his plans in a speech to Congress on Thursday, although he is expected to face opposition from Republicans, who consider some of the ideas wasteful.
Telefonica plans restructure. As it struggles to compete with cheaper rivals in its home market, Telefonica (NYSE:TEF) plans to fold its domestic unit into its European division and reshuffle senior management. The carrier also intends to group its online businesses into a new unit called Telefonica Digital. RBS believes the restructure could help lower expenses by centralizing procurement and in the creation of new products, although a Sanford C Bernstein analyst doesn't believe the moves will lead to a fast transformation of the company.
Toshiba in talks to buy Shaw's stake in Westinghouse. Toshiba (OTCPK:TOSBF) is reportedly in discussions to buy Shaw Group's (NYSE:SHAW) 20% stake in Westinghouse Electric, five years after the two firms and another Japanese company bought the nuclear power plant business from British Nuclear Fuels for $5.4B.
Allianz separates PIMCO from other asset management ops. Allianz (OTCQX:AZSEY) has separated PIMCO from its other asset management operations, although the move isn't a precursor to a sale of any unit. The German insurer has created a new division called Allianz Asset Management, which consists of Allianz Global Investors as well as PIMCO, and holds around €1.4T ($2T) in assets. PIMCO continues to be headed by co-founder and co-CIO Bill Gross, and by CEO and co-CIO Mohamed El-Erian.
In Asia, Japan -2.2% to 8591. Hong Kong +0.5% to 19711. China -0.3% to 2471. India +0.9% to 16863.
In Europe, at midday, London +1.4%. Paris +0.3%. Frankfurt +1.3%.
Futures at 7:00: Dow -1.4%. S&P -1.6%. Nasdaq -1.2%. Crude -1.8% to $84.83. Gold +0.7% to $1890.60.
Tuesday's economic calendar:
10:00 Employment Trends Index
10:00 ISM Non-Manufacturing Index
1:10 PM Fed's Kocherlakota speaks on Monetary Policy
Notable earnings after Tuesday's close: PAY
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