Wednesday, 6 July 2011

Sweden hikes rate, Moody's downgrades Portugal

The Riksbank raised interest rates again on Tuesday. Bloomberg reports:

Sweden’s central bank raised its benchmark repurchase rate for the seventh time in a year and repeated a pledge to continue tightening policy as the country’s economic expansion withstands Europe’s debt crisis.

Policy makers raised the seven-day rate a quarter of a percentage point to 2 percent, the Stockholm-based Riksbank said today said in a statement. The move was expected by all 18 economists surveyed by Bloomberg. The bank maintained its outlook for the pace of continued rate increases.

Next to raise rates could be the ECB, although Tuesday brought further signs that the eurozone economy is slowing. From Bloomberg:

European services and manufacturing growth slowed more than estimated in June, as the region grappled with a worsening debt crisis.

A composite index based on a survey of euro-area purchasing managers in both industries fell to 53.3 from 55.8 in May, London-based Markit Economics said today. That’s the biggest drop since November 2008. Markit had initially reported a drop to 53.6. A reading above 50 indicates growth...

A manufacturing gauge fell to 52 from 54.6 in May, Markit said on July 1. That’s the lowest in 18 months. The services indicator dropped to 53.7 from 56 in the previous month, the weakest pace since October.

And from another Bloomberg report:

European retail sales declined the most in more than a year in May, as consumers from Germany to Ireland and Spain cut spending.

Sales in the 17-nation euro region slipped 1.1 percent from April, when they rose 0.7 percent, the European Union’s statistics office in Luxembourg, Eurostat, said today. That’s the biggest decline since April 2010. Economists had projected a drop of 1 percent, the median of 22 estimates in a Bloomberg News survey showed. Sales fell 1.9 percent from a year ago.

The euro area's main concern at the moment though remains sovereign debts. Developments on Tuesday on this front were also negative. From Bloomberg:

Moody’s Investors Service cut Portugal’s credit rating to below investment grade on concern the southern European country will need to follow Greece in seeking a second international bailout.

The long-term government bond ratings were lowered to Ba2, or junk, from Baa1, and the outlook is negative. Discussions to involve private investors in a new rescue plan for Greece make it more likely that the European Union will require the same pre-conditions in the case of Portugal, Moody’s said in a statement.

Europe was not the only place where Moody's raised concerns. From AFP/CNA:

China may have understated the debt burden of local governments by as much as US$541.6 billion, and the proportion of bad loans could be higher than previously forecast, ratings agency Moody's said Tuesday.

In a stern warning, Moody's warned the lack of a plan to tackle bad loans to local governments meant it could downgrade its outlook for Chinese banks to negative.

Amid these negative pieces of news on Tuesday were a few positive ones.

In the UK, the services PMI rose in June. Bloomberg reports:

U.K. services growth accelerated in June as the industry rebounded from a slowdown related to an additional public holiday. The pound erased its decline.

A gauge based on a survey of companies rose to 53.9 from 53.8 in May, Markit Economics Ltd. and the Chartered Institute of Purchasing and Supply said today in a report in London. Economists had forecast that the index would slip to 53.5, according to the median of 26 estimates in a Bloomberg News survey. A measure above 50 indicates expansion. A measure of new business fell in June.

In the US, factory orders rose in May. Bloomberg reports:

Orders placed with U.S. factories increased in May, indicating manufacturing may rebound from a slowdown in economic growth in the first half of 2011.

Bookings for manufacturers’ goods rose 0.8 percent, less than forecast, after a revised 0.9 percent decline in April that was smaller than previously estimated, figures from the Commerce Department showed today in Washington. Demand for durable goods that are meant to last at least three years increased 2.1 percent, while unfilled orders climbed the most since September.

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