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Prospects Daily: Services sector indices for the US, UK and India decelerate, Indonesia’s growth slows in the third quarter of 2012

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Financial Markets…Safe-haven government bonds extended their gains, with U.S. Treasury 10-year yields sliding 3 basis points to 1.68% and comparable German bund yields falling 2 bps to 1.43%, amid Greek worries and uncertainty before U.S. presidential elections tomorrow. Notably, German 2-year note yields fell below zero for the first time since September 6th.

Credit-default swaps on European bank debt rose, with the Markit iTraxx Financial Index on the senior debt of 25 banks and insurers climbing 3 basis points to 175 bps, as HSBC, Europe’s largest bank, reported less-than-expected earnings. Investor confidence on European banks was also hurt by news that U.K.’s Barclay Plc is planning to issue contingent bonds to bolster capital buffers.

Fitch Ratings upgraded Turkey’s sovereign credit rating from ‘BB+’ to ‘BBB-‘ on Monday, the country first investment grade ranking since 1994. The rating agency cited an easing of near-term economic risks and sound public finances with lower debt. Following the upgrade, the nation’s stocks and government bonds rallied to record levels.

High-income Economies…The ISM non-manufacturing index for the US eased to 54.2 in October from 55.1 in September, indicating a slowing in the pace of growth in the services sector for the first time since June (A reading above 50 indicates expansion). The forward-looking new orders gauge fell to 54.8 from 57.7, but the sub-index for employment rose to 54.9 from 51.1.

Markit’s services sector Purchasing Managers’ Index (PMI) for the UK dropped to 50.6 in October from 52.2 in September, remaining above the 50 mark that separates expansion from contraction, but indicating the slowest pace of services sector growth in almost two years amid fragility of both demand and confidence among consumers.

The number of unemployed in Spain rose 2.7% in October, the third consecutive monthly increase, to 4.83 million as the economy continues to struggle amid austerity measures and recent tax hikes. On an annualized basis, the number of job seekers climbed by 10.8%.

Hungary’s manufacturing Purchasing Managers’ Index (PMI) dropped to 49.9 in October from 52.5 in October, indicating that manufacturing activity stagnated. 

manufacturing PMI slipped deeper into negative territory dropping to 48.3 in October from 48.7 in September, indicating contraction for the fourth consecutive month, with the decline attributed to a further decline in new orders, new export orders as well as production output.

Czech Republic’s retail sales fell at a steeper pace of 3.3% (y/y) in September compared to a 0.8% decline in August, as consumer spending weakened amid an overall economic contraction.

Developing Economies
…HSBC Markit Economics survey suggests that the Indian service sector activity saw the slowest pace of increase in six months in October with the purchasing managers' index for the service sector falling to 53.8 from 55.8 in September.

quarterly growth slowed to 1.3% (q/q) in the third quarter from 1.6% in the second quarter and the annual growth also weakened in the third quarter. The economy expanded at 6.17% (y/y) in the third quarter, slightly below the 6.37% growth in the second quarter, due to weak exports on subdued global demand but supported by robust domestic consumption and investment. Exports declined by 2.8% in the third quarter (9.4% y/y), investment grew 10% (y/y) and household consumption advanced 5.7% in the third quarter.

Turkey's consumer price inflation slowed markedly in October to 7.8% (y/y) much lower than 9.2% gain seen in September. Turkey's producer price inflation slowed to 2.6% in October from 4.0% in September.

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