Friday, 8 July 2011

ECB raises interest rates, drops rating requirement for Portugal

As expected, the ECB raised interest rates on Thursday. Reuters reports:

The European Central Bank raised interest rates for the second time in three months on Thursday and signaled a further hike is likely this year to tackle inflation despite the intensifying euro zone debt crisis...

"We will continue to monitor very closely all developments with respect to upside risks to price stability," Trichet told a news conference after the bank raised interest rates by 25 basis points to 1.5 percent -- its second rise this year.

The ECB also took action to help Portugal.

The ECB also offered help to hard-pressed Portugal after ratings agency Moody's downgraded its debt to junk status this week, pledging to keep providing it with liquidity regardless of ratings...

"We have decided to suspend the application of the minimum credit rating threshold ... for the purpose of Eurosystem credit operations in the case of marketable debt instruments issued or guaranteed by the Portuguese government," he said.

"This suspension will be maintained until further notice."

The BoE left interest rates unchanged on Thursday.

Economic data on Thursday were mostly positive.

German industrial production rebounded in May, according to Bloomberg:

Industrial production in Germany, Europe’s largest economy, increased more than economists forecast in May, led by rising output of investment goods such as machines.

Production jumped 1.2 percent from April, when it fell a revised 0.8 percent, the Economy Ministry in Berlin said today. Economists had forecast a gain of 0.8 percent, the median of 32 estimates in a Bloomberg News survey showed. In the year, output rose 7.6 percent when adjusted for working days.

UK industrial production also rebounded in May, reports Reuters:

Manufacturing output rose at its fastest pace in over a year in May as factories ramped up output after a Royal Wedding-related drop in April, official data showed Thursday...

The Office for National Statistics said that manufacturing output -- which does not include utilities or oil and gas extraction -- rose by 1.8 percent in May, after a drop of 1.6 percent in April.

The wider measure of industrial output, however, rose by a below-forecast 0.9 percent in May, making up only half of April's drop. A sharp fall in oil and gas production due to unplanned maintenance work was largely to blame.

AFP/CAN reports that Japanese machinery orders were up in May.

Japan's core private-sector machinery orders, a leading indicator of corporate capital spending, rose 3.0 per cent in May from the previous month, official data showed on Thursday.

The core data, which exclude volatile demand from power companies and for ships, reversed a 3.3 per cent drop registered for April.

And Bloomberg reports signs of improvement in the US labour market.

Companies in the U.S. added twice as many workers as forecast in June, signaling an improvement in the labor market that may help bolster the economy in the second half of the year.

The 157,000 increase followed a 36,000 gain the prior month, according to data from ADP Employer Services. The median forecast in a Bloomberg News survey called for an advance of 70,000...

The Labor Department said today that first-time applications for unemployment insurance fell while remaining at a level that shows the labor market will take time to heal. Jobless claims dropped by 14,000 to 418,000 in the week ended July 2, in line with the median forecast in a Bloomberg survey.

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