The week's top news in world financial markets from Maximus Capital

  • 2009-12-09

Moody’s Investors Service said last week that its top debt ratings on the U.S. and the U.K. may “test the AAA boundaries” because their public finances are worsening in the wake of the global financial crisis. The U.K. and U.S. have “resilient” AAA ratings, as opposed to the “resistant” top ratings on Canada, Germany and France, Moody’s wrote in their report. The rating agency expressed worry that the expansion of the U.S. economy won’t be enough for it to make “major progress” in reducing its budget deficit. OECD forecasted in June that the U.S.’s debt burden will climb to 97.5 percent of gross domestic product next year from 87.4 percent. National debt climbed to $7.17 trillion in November.

Euro zone
European investor confidence rose to an 18-month high in December after the economy emerged from recession and stock markets rallied. The Limburg, Germany-based Sentix research institute reported last week that an index measuring sentiment in the 16-nation euro region increased for a fifth straight month, to minus 5.5 from minus 7 in November. A gauge of current business conditions rose to minus 19.5 from minus 24.25, while a measure of expectations eased to 9.5 from 12. The euro area returned to economic growth in the third quarter after governments spent billions of euros on stimulus measures and the global economy gathered strength, fueling demand for European exports. Europe’s Dow Jones Stoxx 600 share index has risen 24 percent this year and Germany’s benchmark DAX index has gained 20 percent. At the same time rising unemployment may weigh on private consumption and damp growth next year. Commenting on the results, Sentix said that the phase of economic stabilization is continuing slowly but steadily but still, there’s no reason for euphoria. Investors expect central banks to start tightening monetary policy and “that’s one reason for the damper in economic expectations.”

CIS countries
Russia’s central bank will leave its key interest rate on hold this year and limit reductions in 2010 to 1 percentage point even as households and businesses suffer credit shortages and as investors use the ruble for speculative gains. Bank Rossii, which has cut rates nine times since it started easing in April to a record low 9 percent, may trim the benchmark refinancing rate to 8 percent by the end of next year, according to the median estimate of 15 economists surveyed by Bloomberg. The bank, which doesn’t publish a schedule for rate announcements, last lowered rates on Nov. 24. The cuts may not be enough to persuade banks to resume lending or to dissuade investors from turning to the ruble for higher relative returns.
Ukraine’s inflation rate, Europe’s highest, declined in November for a fourth month as the recession curbed domestic consumption. The Kiev-based state statistics committee said last week that the rate fell to 13.6 percent, the lowest since July 2007, from 14.1 percent in October. The median estimate of eight economists in a Bloomberg survey was 13.7 percent. In the month, prices increased 1.1 percent. The economic contraction, including a record annual 20.3 percent slump in the first quarter, is helping subdue inflation, which the government has been unable to push below 10 percent since 2003. The central bank has cut its key interest rate twice since June as the recession blunted price pressures.

*** Written using the materials by Bloomberg and Reuters