Important developments today:
1. German government bond climbs amid demand for safe-haven assets
2. U.S. service sector expands in September
3. The euro zone’s services PMI fell from 55.9 in August to 54.1 in September
German government bond climbs amid demand for safe-haven assets. German bund yields fell to their lowest in more than a month on Tuesday morning as Moody’s Investor Service placed Irish debt on review for a possible downgrade and the Bank of Japan expanded quantitative-easing programs, boosting demand for benchmark government securities. The BOJ cut its key interest rate further to almost zero as it tries to shore up the country’s faltering economy. The yield on the 10-year German bund fell 4 basis points (bps) to 2.22%, while two-year bund yields declined 3 bps to 0.81%. Moody’s warned that it was considering lowering Ireland’s credit rating by a one notch to ‘Aa3’ from ‘Aa2 amid concerns over the country’s economic recovery.
U.S. service sector expands in September. According to a release by the Institute of Supply Management (ISM) today, the non-manufacturing sector in the U.S expanded faster in September compared to August. The ISM’s purchasing managers index (PMI) rose to 53.2 in September from 51.5 in August. This should augur well for Q3 GDP growth as the non-manufacturing sector has lagged the manufacturing sector in supporting recovery in the U.S. However with the expansion this gap is being closed. Equally important to note is that ISM’s non-manufacturing sector employment index, which has been a drag on the overall PMI, rose above the 50 mark in September (50.2), signaling increased employment in the services sector.
In high-income Europe… The euro zone’s services PMI fell from 55.9 in August to 54.1 in September, a six month low. This slow down in services activity, a dominant part of the eurozone economy, is consistent with a slowdown in growth for the eurozone in H2 2010. However, the slowdown across individual eurozone countries will differ. The PMI shows a contraction in the services sector in Ireland and Spain whereas services output in Germany and France continued expanding, albeit at lower rates. Further, on the employment sub-index, there were improvements in the German and French labor markets, whereas job losses were recorded in Italy, Spain and Ireland.
Among emerging markets
In Latin America and Caribbean, Chile’s index of economic activity increased 7.6% (y/y) and 2.6% (m/m) in seasonally adjusted terms for the month of August as released today by the Banco Central de Chile.
Venezuela’s consumer price index reached 1.1% (m/m) in September and 2.5% (y/y) as released today by the Central Bank.
In Central and Eastern Europe and the CIS, Poland’s Prime Minister announced today that the general government budget deficit for 2010 will fall between 7 to 8% of GDP.