Tuesday, 21 December 2010

US economy slows, Hungary raises interest rate

The Chicago Fed reports that US economic activity slowed in November.

Led by declines in employment-related indicators, the Chicago Fed National Activity Index decreased to –0.46 in November from –0.25 in October. Three of the four broad categories of indicators that make up the index deteriorated from October to November, with only the production and income category improving.

The index’s three-month moving average, CFNAI-MA3, ticked up to –0.41 in November from –0.42 in October. November’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. With regard to inflation, the amount of economic slack reflected in the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

There were mixed reports from the UK. Consumer confidence was steady in December, mortgage lending fell last month to the lowest for a November since 2000 but mortgage approvals rose.

Europe's sovereign debt problem, though, continues to be the main source of concern for investors as contagion remains a risk. From Bloomberg:

France risks losing its top AAA grade as Europe’s debt crisis prompts a wave of downgrades that threatens to engulf the region’s highest-rated borrowers, with Belgium also facing a possible cut...

Costs to insure French government debt trebled this year, rising to an all-time high of 105.5 basis points today, according to data provider CMA...

The credit default swaps tied to the French bonds imply a rating of Baa1, seven steps below its actual top ranking of Aaa at Moody’s, according to the New York-based firm’s capital markets research group.

Contracts on Portugal imply a B2 rating, 10 levels below its A1 grade, while swaps tied to Spanish bonds trade at Ba3, 11 steps below its Aa1 ranking, data from the Moody’s research group show. Derivatives protecting Belgian debt imply a rating of Ba1, nine steps below its current rating of Aa1.

And yet, Hungary, not exactly immune to the debt crisis, saw an interest rate hike on Monday. Bloomberg reports:

Hungary’s central bank increased the main interest rate for a second month on concern that inflation will accelerate as policy makers defied Prime Minister Viktor Orban’s calls for lower borrowing costs to protect growth.

The Magyar Nemzeti Bank raised the benchmark two-week interest rate to 5.75 percent from 5.5 percent after a surprise increase last month, the first since 2008. The decision was “near-unanimous,” central bank President Andras Simor said. Eleven of 23 analysts predicted the move in a Bloomberg survey.

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