Important developments today:
1. European government bonds climb on speculation Fed may resume debt buyback
2. Euro area industrial orders slump in July
European government bonds climb on speculation Fed may resume debt buyback. European government debts rallied on Wednesday, driving the yield on German 30-year bond to lower than 3% for the first time in a week, amid speculation the Federal Reserve may resume another wave of asset purchases (or so-called quantitative easing) to provide more cash into the economy. The benchmark German 10-year bund yield slid the most in a month to 2.34%, with the yield on the equivalent French bond dropping 10 basis points (bps) to 2.7%. The U.K. 10-year gilt fell 15 bps to 2.97% on speculation the Bank of England would also ease monetary policy, while the yield on 10-year U.S. Treasury slid 4 basis points to 2.54% after falling 14 bps yesterday. Notably, the yield on Portuguese bond fell in line with other European securities, after the country sold €750 million ($ billion) of government debt maturing in 2014 and 2010.
Euro area industrial orders slump in July. New industrial orders across the euro area dropped sharply in July (-2.4%), the largest monthly drop in 19 months. The momentum growth picked up since the beginning of this year now appears to be trending down. Capital good orders, which had helped power the growth in industrial orders, slumped to a fall of 5.1% in July in contrast with the 3.8% rise in June.
These figures lend support to the expected slow down in euro area growth in H2 2010. As the global economy slows down, export orders which had contributed to the rapid recovery in industrial orders among euro area countries, including Germany [see Chart at http://gem or http://www.worldbank.org/gem] is also slowing down. Other euro area specific concerns contributing to this slowdown include lingering concerns on sovereign debts in the euro area, planned cuts in fiscal deficits and high unemployment levels which is holding back purchases of consumer durables. Indeed, orders of durable consumer goods which fell by 3.2% (m/m) is the only order category to have dropped on an annual basis in July, highlighting the difficult spending environment for consumers.
Source: World Bank DEC Prospects Group and Thomson Reuters.
Among emerging markets:
In Central and Eastern Europe and the CIS, Hungary’s retail sales climbed 1.7% y/y in July compared to June’s decline of 4.6% y/y, in a release by the Statistics Office. This is the first time in 41 months that retail sales rose.
In Middle East and North Africa, Kuwait’s Central Bank indicated that the country’s M1 money supply growth reached 12.1% y/y in August from July’s 17.9% y/y whilst M2 money supply growth was 2.3% y/y and 1.2% y/y for the same periods.
In Sub-Saharan Africa, South Africa’s current account deficit decreased from 4.6% of GDP in Q1 to 2.5% in Q2, led by a recovery in the exports of commodities, automobiles and tourism receipts as stated in the Reserve Bank’s Quarterly bulletin. During the 2010 World Cup, retails sales increased 7.9% in July and consumer spending reached an annualized 4.8% growth in Q2.