Important developments today:
1. U.S. and German government bonds decline
2. Industrial production rebounds in eurozone
U.S. and German government bonds decline. U.S. treasuries and German bunds fell on Wednesday as signs of more stability in Europe reduced demand for safe-haven assets. Talk among German, French, and Geek leaders and a smaller than expected downgrade of French banks by Moody’s provided some relief. Moody’s Investors Service cut ratings on two of the largest French banks (including Credit Agricole and Societe Generals), but did not include the nation’s biggest bank (BNP Paribas) as many had expected. Nevertheless, many investors remain very uncertain about global economic picture, and continue to view Greek sovereign default as inevitable. U.S. benchmark 10-year note yields rose less than one basis point to 2.02%, while German 10-year bund yields advanced 4 bps to 1.83%. Among other European government debt, Italian government bonds rose for the first time in five days as the European Central Bank was reportedly to purchase the nation’s debt in an effort to prevent funding costs from rising further.
Industrial production rebounds in eurozone. Supported by strong growth in Germany, industrial production in the eurozone rebounded by 1% (m/m) in July (after a fall of 0.8% in June) and is up 4.1% on a year-on-year basis. For the 27-member European Union, industrial production was up 1.1% (m/m), with some 16 member countries reporting output increases (including Germany, France, Greece, Estonia, Latvia,) and another seven (including Italy, Portugal, Spain, Slovakia and Slovenia) reporting output decreases. Momentum growth of industrial production in the eurozone however continues to decelerate, with the three-month-on-three month momentum growth, which is a better measure of trend as it smoothens the monthly volatility, down by 0.57% in July from 0.91% in June. With consumer and business confidence down as the eurozone debt situation persists, and leading indicators (including the Purchasers Managers Index) also falling, industrial production in the eurozone is likely to continue its slowdown through the third quarter.
In other high-income country economic news, Japan’s industrial production rose by 0.4% (m/m) in July according to a release by the Ministry of Economy, Trade and Industry. This marks the fourth consecutive month of an increase in industrial production, following the March earthquake.
Among Emerging Markets
In South Asia, India’s annual inflation rate, measured by the benchmark wholesale price index, jumped to 9.78% in August from 9.22% in July, reinforcing the possibility of another rate hike at the central bank’s policy meeting later this week. The Reserve bank has tightened interest rates 11 times since March 2010.
In Sub-Saharan Africa, Nigeria’s annual inflation rate eased for a second month running in August, dropping to 9.3% from 9.4% in July. The improvements in inflation are a result of lower food prices and the central bank’s four consecutive hikes in the benchmark policy rate to rein in prices.