* UK retail spending unchanged in August
* Central banks act to help European lenders
* US stimulus package praised by IMF
* Inflation eases in China while price pressures remain in India
* Moody´s cuts two French banks´ credit ratings
UK retail spending unchanged in August
The Office for National Statistics (ONS) said that the value of UK retail sales, excluding fuel, in August was the same as the month before and 3.2% higher than the same month a year ago. Retail sales by volume, excluding fuel, fell slightly in August month-onmonth. Separate ONS data showed that Britain’s Consumer Price Index (CPI) increased by 4.5% in August, up from 4.4% in July. A Bank of England (BoE) survey revealed that consumer expectations of inflation over the next year have risen to 4.2% from 3.9% in May. The survey also showed that consumers expect inflation to be 3.5% in the longer term, up from 3.3% in May. Meanwhile, the retail prices index, which is used for many pay negotiations, hit 5.2% in August from 5% in July.
The ONS said that public sector employment shrank by 110,000 to 6.04m in the three months to July, the largest fall since 1999. Over the year, the total fell by 240,000. The private sector created 264,000. The jobless rate in the quarter was 7.9% of the workforce, unchanged from last month’s data but up from 7.6% in the previous quarter.
In other news, the UK trade deficit remained at £4.5bn in July as higher exports were counterbalanced by higher imports. Export prices of goods fell slightly while import prices rose 1.3%.
Central banks extend help to European lenders
This week saw the euro gain 0.9% against the dollar to $1.386 while German government bond yields fell (and prices rose). Five central banks, including the European Central Bank, the Bank of England and Switzerland’s central bank said that they would provide threemonth dollar loans to European lenders from October. The loans will cover the year-end period when banks seek to secure strong financial positions for their accounts. European banks have experienced difficulties obtaining dollar funding (the cost for European banks to swap euros into dollars has jumped fivefold since June, hitting the highest levels since December 2008).
Meanwhile, in Italy, Silvio Berlusconi’s government passed an austerity budget that aims to promote economic growth and cut public sector debt, now over €1,900bn. In Spain, the Treasury sold €3.95bn in long-term sovereign bonds, nearly reaching the top of its €3bn-€4bn sales target. Separately, France and Germany offered their full support for Greece remaining in the Euro area. The European Commission said that economic growth across the European Union will have slowed to a “virtual standstill” by the end of the year. The Commission also predicts that a recession should be avoided. For its part, the European Central Bank said that a recession in the Euro area “appears rather unlikely.”
US stimulus package praised by IMF
US President Barack Obama proposed a US$447bn package to stimulate the economy that includes a US$49bn extension of jobless benefits and tax breaks for companies that hire new workers. International Monetary Fund Managing Director Christine Lagarde praised the President’s stimulus proposal but warned that the US needed to do more to reduce its level of debt, while setting shortterm fiscal policy to boost demand. In a separate statement, World Bank President Robert Zoellick said that problems in several developed countries, including the US were threatening growth and stability in the developing world.
In other news, the Labour Department’s US inflation report revealed that core prices, which exclude food and energy, rose 2% in August compared with a year earlier, the fastest yearly pace in almost three years. From July, core prices rose 0.2%, in line with expectations and the same rate as the previous month. Overall prices were 0.4% higher than in July. A separate Labour Department report showed that producer prices were unchanged in August, as had been expected, following a 0.2% increase in July. Prices were 6.5% higher than a year ago, the lowest annual rise since March. Meanwhile, the Mortgage Bankers Association reported that US mortgage applications rose for the first time in a month as borrowing rates fell to a record low. The Commerce Department said that retail sales in August were unchanged from July as consumers were reluctant to spend amid global economic turmoil.
Japan’s second Quarter GDP contraction revised to 2.1%
Japan’s Cabinet Office said that the nation’s GDP fell at an annual rate of 2.1% in the second quarter, significantly more than last month’s estimate of a 1.3% contraction. A rise in public investment, related to reconstruction of the Tohoku area after the March 11 earthquake and tsunami, was erased by a sharp downward revision of private non-residential investment, from growth of 0.2% to a fall of 0.9%. The figures confirm a weak environment for corporate capital spending, highlighted in a recent Ministry of Finance survey of corporate financial statements. Many commentators expect GDP to resume growth in the July-September period to pull Japan out of three quarters of contraction.
Emerging market news
This week China’s National Bureau of Statistics reported that the nation’s CPI rose 6.2% in August year-on-year down from a 6.5% rise in July. Volatile food price rises slowed to 13.4% in August compared with a year earlier, down from a 14.8% rise the previous month. The Ministry of Commerce said that foreign direct investment in China climbed 11.1% in August from a year earlier after expanding 19.8% in July. Exports rose 24.5% from a year earlier following July’s 20.4% increase. The smaller trade surplus was mainly due to an unexpected surge in imports, which jumped 30.2% in August from a year earlier.
Elsewhere, India’s annual inflation rate accelerated slightly to a 13-month high of 9.78% in August. Separate data showed that India’s industrial production growth slowed in July to 3.3% from 8.8% in June. The central bank has raised rates 11 times over the last 18 months. India’s government raised the cap on foreign borrowings without approvals by 50% to US$750mn and said that it may permit the overall limit to exceed US$30bn.
In other news, Bank Rossii unexpectedly cut Russia’s overnight auction-based repo rate by 0.25% to 5.25%, the first cut since last May. Russia’s central bank also raised the rate it pays on deposits to avert a potential ruble shortage in money markets The Russian currency slipped 0.3% to 30.3170 against the dollar, nearly its lowest level in more than eight months.
Company news
This week leading French banks had their credit ratings downgraded by Moody’s Investors Service. The ratings agency cut Société Générale’s long-term debt by one notch, citing “persistent fragility in the bank financing markets”, given the lender’s continued reliance on the wholesale funding markets. Moody’s also downgraded Crédit Agricole’s long-term debt rating owing to its large holdings of Greek sovereign debt. Moody’s said that it was keeping BNP Paribas’ long-term Aa2 ratings under review while it assessed the potential impact of funding difficulties on the bank’s credit profile. Following Moody’s announcement, BNP revealed plans to sell €70bn of assets to boost its capital and reduce its funding needs.
Separately, UBS warned that the discovery of unauthorised trading and a US$2bn unexpected loss (and the subsequent arrest of Kweku Adoboli, a 31-year old trader in the group’s London-based exchange traded funds business) could prompt the Swiss group to report an overall loss when third-quarter figures are revealed in October. The share price of UBS fell over 10%.
