Important developments today:
1. Egypt’s sovereign risk slides to lowest since protests
2. German industrial production falls for second consecutive month
Egypt’s sovereign risk slides to lowest since protests. Egypt’s credit risk dropped to the lowest level since the protests began and borrowing costs are easing amid the start of negotiations between the government and opposition. The cost of insuring Egypt’s government debt for five years with credit-default swaps fell by 6.5 basis points (bps) to 338.5 bps this morning, the lowest level since January 25th, according to CMA prices. The yield on Egypt’s global bond due in 2020 rose 11 bps to 6.3%, down 89 bps from a record high of 7.21% on January 31st, according to Bloomberg data. Other signs of moving toward normalcy include the gradual reopening of the country’s financial system that was shut down all last week—banks began to restore their services and the stock market is due to open on February 13th.
German industrial production falls for second consecutive month. German industrial production fell by 1.5% (m/m) in December, the second consecutive monthly decline. The December decline was exacerbated by harsh winter conditions, with output in the construction sector alone declining by 24.1% (m/m). Overall manufacturing output (which excludes construction activity) fell by only 0.1%(m/m) compared to the 0.5% decline in November [see Chart at http://gem or http://www.worldbank.org/gem. While consumer goods output declined by 1.3%, capital goods increased by 3.3% and the energy sector posted a 0.3% increase. Recent business surveys – manufacturing PMI and IFO index- still hover around historical highs thereby pointing to continued expansion in manufacturing activity. However, with easing global growth and public spending cutbacks in eurozone manufacturing activity in Germany is likely to slowdown from the strong growth recorded since Q2 2010. According to the Bundesbank, the German economy is expected to grow at 2% in 2011 after posting a robust 3.6% growth in 2010.
Among emerging markets
In East Asia and Pacific, China’s central bank raised the benchmark one year deposit rate by 25 basis points to 3%, and the one year lending rate by the same amount to 6.06%, with the change to take effect on Wednesday. This is the third move to tighten monetary policy since October 2010 in response to building inflationary pressures. Inflation for 2010 was 3.3%, exceeding the target rate of 3%. While annual inflation dropped to 4.6% in December (from 5.1% in November), the central bank has raised its target inflation rate to 4% for 2011 in anticipation of continued inflationary pressures.
In Latin America and Caribbean, Brazil’s 12-month inflation was 5.99% in January, well above the target rate of 4.5%, and inching closer to the top of the 2% tolerance band.
In Central and Eastern Europe and the CIS, Turkey’s industrial output soared a seasonally and calendar adjusted 5.7% (m/m) in December (after a moderate decline in November), supported by the strength of domestic demand in the economy. The annual growth in industrial output was recorded at 16.9% for the year ending December. Hungary’s industrial output dropped 11.8% (m/m) in December as a sudden drop in export demand weighed down production in the manufacturing sector.