Global Weekly Wrap-Up – last week
Wrap up – last week
Spain downgraded while Greek unemployment breaches the 25% level
Global stock markets ended the week lower. Standard and Poor’s, the credit rating agency, downgraded Spain’s credit rating by two notches from BBB+ to BBB- due to the country’s deepening economic recession and an inability to handle mounting borrowing costs. Meanwhile, Christine Lagarde, head of the International Monetary Fund (IMF), announced that European countries should avoid further budget cuts or tax rises if growth continues to weaken. Meanwhile, Greek unemployment reached a record 25.1% in July; the level among the 15-24 age group breached 54%.
In the UK, the construction sector contracted again in August. Construction activity in the month was down 11.6% compared to a year ago and was down 0.9% from July’s level, according to the Office for National Statistics (ONS). In company news, Royal Bank of Scotland’s insurance arm, Direct Line, made its debut on the London Stock Exchange on Thursday at 175p. Shares jumped more than 7.0% on its first day of trading, giving the company a market value of £2.82 billion.
In the US, new claims for jobless benefits fell by 30,000 to the lowest level in more than four and a half years, suggesting an improvement in the jobs market. However, some analysts have suggested that the drop reflects distortions due to seasonal adjustments. Meanwhile, corn prices leapt nearly 5% after the US government made fresh cuts to its forecast for global wheat and corn supplies.
Elsewhere, in Asia, the Chinese yuan jumped to its highest level against the US dollar in almost 20 years, due in part to the dollar’s weakness since early September. Chinese officials have expressed concern that the US Federal Reserve’s policy of quantitative easing would fuel higher global commodity prices, and a stronger yuan is a way of reducing imported inflation.
Shaping the markets — this week
Will Spain ask for help at the European Council meeting on 18-19 October?
The focus of the week will be on the European Council on 18-19 October. This is another opportunity for Spain to request a financial assistance programme. On Tuesday, UK consumer price inflation is expected to fall below 2.5% year-on-year (y-o-y), as the September 2011 utility price inflation number drops out of the calculation. Meanwhile, there may be a small fall in output price inflation from Tuesday’s UK producer prices. In Germany, the consensus is for the ZEW economic sentiment survey to remain relatively unchanged from September. On Wednesday, the UK labour claimant count is likely to report a rise as thousands of temporary positions created by the Olympics have come to an end. A month-on-month (m-o-m) rise of 0.5% is expected in UK September retail sales on Thursday as spending on clothing increased as the weather turned colder.
In the US, the Empire State manufacturing activity is likely to show an improvement but remain in contraction territory on Monday. Retail sales are expected to remain unchanged with a gain of 0.9% m-o-m in September, based on increases in consumer goods purchases and higher retail and food services sales. Further gasoline price rises should lead to an increase in retail energy costs, driving the consumer price index higher in September. Meanwhile, industrial production is likely to remain wholly unchanged after the slump in August. Wednesday should reveal a rise in housing starts and building permits from a rebound in multi-family and single family building activity.
In Asia, China’s Q3 gross domestic product (GDP) growth is likely to have dipped to 7.4% y-o-y on Thursday, while industrial production should show its first pick-up in five months to 9.0% y-o-y.
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