The European Central Bank has more room to cut interest rates to a record low early next year after reports showed the sovereign debt crisis is damping inflation pressures.
The rate of growth in M3 money supply, which the ECB uses as a gauge of future inflation, fell to 2 percent in November from 2.6 percent in October, the Frankfurt-based central bank said today. Growth in loans to households and companies across the 17-nation euro area also slowed, while inflation in Germany, the region’s largest economy, decelerated in December.
The data reinforce the view “that underlying inflationary pressures are easing and that the ECB has ample scope to cut interest rates again in the early months of 2012,” said Howard Archer, chief European economist at IHS Global Insight in London. “Euro-zone inflation is poised to retreat markedly over the coming months.”
The ECB lowered its benchmark rate (EURR002W) to 1 percent in December, matching the record low, and stepped up efforts to flood the banking system with cash as the debt crisis threatened to engulf Italy and Spain. It may take its key rate into uncharted territory within months as the economy teeters on the brink of recession, according to economists such as Jacques Cailloux at Royal Bank of Scotland Group Plc.
Bloomberg
The European Central Bank has more room to cut interest rates to a record low early next year after reports showed the sovereign debt crisis is damping inflation pressures.
The rate of growth in M3 money supply, which the ECB uses as a gauge of future inflation, fell to 2 percent in November from 2.6 percent in October, the Frankfurt-based central bank said today. Growth in loans to households and companies across the 17-nation euro area also slowed, while inflation in Germany, the region’s largest economy, decelerated in December.
The data reinforce the view “that underlying inflationary pressures are easing and that the ECB has ample scope to cut interest rates again in the early months of 2012,” said Howard Archer, chief European economist at IHS Global Insight in London. “Euro-zone inflation is poised to retreat markedly over the coming months.”
The ECB lowered its benchmark rate (EURR002W) to 1 percent in December, matching the record low, and stepped up efforts to flood the banking system with cash as the debt crisis threatened to engulf Italy and Spain. It may take its key rate into uncharted territory within months as the economy teeters on the brink of recession, according to economists such as Jacques Cailloux at Royal Bank of Scotland Group Plc.
Bloomberg
Italy auctioned 7.02 billion euros of bonds, falling short of the target, as borrowing costs declined in its final debt sale of the year.
The Treasury in Rome sold 2.5 billion euros of securities due in 2014, less than the 3 billion euro maximum for the sale, to yield 5.62 percent, down from 7.89 percent at the previous sale on Nov. 29. The Treasury priced 2.5 billion euros of its 5 percent 2022 bond to yield 6.98 percent, compared with 7.56 percent on Nov. 29. Italy also sold about 2 billion euros of bonds due 2021 and a floating-rate security due 2018.
The sale, which aimed to raise 8.5 billion euros, came one day after Italy auctioned 9 billion euros in treasury bills for 3.251 percent. That was about half the rate from the previous auction on Nov. 25 after the European Central Bank last week offered euro-area banks unlimited funds for three years.
Bloomberg
The euro opened lower Monday morning and investors appear skeptical in the wake of the weekend Eurozone meeting to address the worsening Eurozone debt crisis. Participants agreed to lend up to 200 billion euros ($267 billion) to the International Monetary Fund and to establish the European Stability Mechanism (ESM). These monies would be made available to countries struggling to meet debt payments in an attempt to minimize the impact of an uncontrolled default situation.
“The moves by the euro zone policymakers are not a damp squib but neither are they the big bazooka hoped for that could really ease market tension for an extended period,” said Howard Archer, economist at IHS Global Insight.
Source: Reuters
The US Commerce Department released the latest consumer spending results this morning which showed that spending remained flat in April compared to an expected increase of 0.3 percent. This is the first time since last September that monthly spending did not increase.
The report also noted that incomes increased 0.4 percent for the second month, suggesting that consumers are rebuilding savings that many people relied on to make ends meet during the recession. Some analysts however, see an eventual return to spending once employment recovers to more typical levels.
“The consumer is going along for the ride but isn’t really leading the recovery,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “Because employment is growing, we’re starting to create some labor income and that is positive for future consumer spending.”
Source: Bloomberg
China recorded a remarkable 46 percent increase in exports in February compared to the same month one year ago. The actual result was considerably higher than the earlier predictions of 35 to 40 percent and is likely to increase pressure from the US calling for the People’s Bank of China to allow the yen to appreciate.
For the past 18 months, China has pegged the yen to the US dollar. For American consumers particularly, this means that the cost of goods imported from China have remained unchanged and this certainly contributed to the impressive gains experienced by China. Naturally, this has also increased China’s trade gap with the US, and is sure to elicit further calls from the Obama administration to allow the yuan to increase in value.
“The recovery seems to have gained legs and this will give China’s government more confidence to start revaluing the yuan,” said Ren Xianfang, an economist at IHS Global Insight in Beijing.
However, China’s central bank governor, Zhou Xiaochuan, said at the weekend that the government was “very cautious” about easing exchange rate controls because the global economic outlook was still uncertain.
Source: BBC News
For the first time since the second quarter of 2008, the US economy recorded positive growth, expanding 3.5 percent in the quarter ending in September. Despite the upbeat news, analysts suggest that much of the growth can be traced to government stimulus spending which is expected to wind down over the next few months. For this reason, market watchers remain unconvinced that the US can maintain the same rate of growth over the next quarter.
“It’s good to have the economy growing again,” said Brian Bethune, economist at IHS Global Insight. “But we don’t think that rate of growth is sustainable because it is distorted by all the government stimulus.”
BBC News
Lending to companies and household has decreased by 0.3% annually. European governments are trying to spend their way out of a recession trying to stimulate consumption, and as it stands the slight growth in the last quarter could have been short lived.
The annual rate of lending to households also fell by 0.3%, following a fall of 0.2% in August.
Mortgage lending fell at an even faster pace, by 0.6%.
“The September credit data reinforce concerns that weak bank lending could hold back eurozone recovery,” said Howard Archer at IHS Global Insight.
He added that restricted lending could remain a “serious handicap” to recovery.
BBC
