Another Spanish downgrade
The pressure facing euro leaders is increasing ahead of Sunday's summit. Moody's havelowered Spain's credit rating, while Standard & Poor's has done the same with a numberof Italian banks. We expect Norges Bank to signal a freeze of further hiking plans untilspring next year.
Yesterday evening Moody's became the third rating agency to downgrade Spain's credit rating inthe course of the last three weeks.
The rating was turned down two notches, from Aa2 toA1,
and the agency keeps a negative outlook, which means that a further downgrade is likely. Thereason is the dependence of banks, enterprises and government on foreign funding; making themhighly vulnerable in today's stressed financial markets. Disappointing economic growth also makesit harder for the government to achieve its fiscal targets.
Standard & Poors has downgraded 24Italian banks, three large and 21 regional.
The Italian 10-year government bond yield is at5.9% at the moment, up from 5.5% in the beginning of October. The equivalent Spanish yield hasrisen from 5.1% to 5.5% in the same period.
NOK & 3m NIBOR
German and US government bond yields have pulled down slightly since yesterday morning,whereas stock markets have had an uneven development. Positive corporate result reports andrenewed optimism regarding a large, leveraged expansion of the EFSF fund (triggered by an articlein the British newspaper Guardian, which content was later in the day denied by senior Europeanofficials) contributed to a rise in the US stock market.
Asian stock markets have risen duringthe night, and the euro is stronger against the dollar.
SEK & 3m STIBOR
Norges Bank's lending survey reveals that the current stress in financial markets also hits theNorwegian economy through the credit channel. Larger uncertainties regarding the economicdevelopments as well as harder access to foreign funding, has led to a tightening of bank's lendingpractice towards enterprises in Q3. A further tightening is expected in Q4, and banks expect totighten their credit practice towards households as well. The latter's credit demand is continuing toincrease, according to the same survey. The strong build-up of household debt, in parallel withsurging house prices, is the most important factor behind our belief that
Norges Bank will signalthat the next move is up, not down, in today's release of the Monetary Policy Report
(featuring a new interest rate path). The hike next will, however, be very much delayed comparedto the previous path (released in June), indicated to come in March or in May. Internationaldevelopments will be the most important factor behind the flatter interest rate path, along withsomewhat lower expectations for wage growth, and higher money market premiums.
+47 030000021 OsloStranden 21
Offices AbroadNew York
+1 212 681 3800
+44 207 6211111
+86 21 6132 2888
+65 6220 6144
+46 8 4734850
Sales Oslo (+47)
Equity 22 94 89 40Fixed Income 22 01 78 20FX/IR 22 01 76 50
Regional sales (+47)Bergen
55 21 95 80
75 55 87 60
69 39 41 50
61 05 14 69
52 72 09 06
61 27 32 27
38 07 28 62
22 01 76 50
51 84 04 30
77 62 96 80
73 58 74 89
33 37 13 00
73 84 60 09
Research Regional Sales (+47)
Eirik Larsen 22 01 76 55
Research FX/IR (+47)
Øystein Dørum 22 01 76 56Kjersti Haugland 22 01 78 03Ole André Kjennerud 22 01 78 24Knut A. Magnussen 22 01 76 63Maren Romstad 22 01 76 64Camilla Viland 22 01 77 41Kyrre Aamdal 22 01 76 67
Credit Research (+47)
Ole Einar Stokstad 22 01 78 37Mikael L. Gjerding 22 01 77 62Åse Haagensen 22 01 76 93Rolv Kristian Heitmann 22 01 76 77Thomas Larsen 22 01 77 36Knut Olav Rønningen 22 01 78 15
The outcome of yesterday's macro releases was mainly negative. According to the ZEW index
German investors have become even more pessimistic.
The index covering expectationsabout the future fell to -48.3, which is close to the trough in 2008. The current situation index alsofell, but its level remains well above the 2008-level.
UK inflation was markedly higher thanexpected in September,
displaying an annual growth at 5.2%, up from 4.5% in August. Higherfood and energy prices are only one part of the explanation: core inflation rose from 3.2% to 3.4%.This is bad news for Bank of England, which in spite of inflation far above target launched anotherround of asset purchases (GBP 75 bn) in the meeting on 5 – 6 October. The minutes from thismeeting is released today. It will provide us with further information about the assessments behindthe decision which came as a surprise to the market.The Norwegian interest rate decision, as well as the Monetary Policy Report, is released at noon,and half an hour later
US inflation numbers may have an impact on markets
. Core inflation(CPI excl food and energy) reached 2.0% in August, and is expected to increase further to 2.1% inSeptember. An outcome above expectations will lessen Fed's motivation to launch QE3 next year.
Yesterday's key economic events (GMT)As of Unit Prior Poll Actual08:30 UK CPI sep y/y % 4.5 4.9 5.209:00 Germany ZEW index Oct Index -43.3 -45.0 -48.314:00 USA NAHB housing market index Oct Index 14 15 18Today’s key economic events (GMT)As of Unit Prior Poll DnB NOR12:00 Norway Interest rate decision % 2.25 2.25 2.2512:30 US CPI excl food/energy Sep m/m % 0.2 0.212:30 US Housing starts Sep mill 0.571 0.590