Daily Archives: August 25, 2010

Robin Harding

Back in April when I planned my move to the US, August looked like a safe time to be packing boxes and dealing with utility companies. The economy was growing, the Fed seemed set to keep policy on hold for at least a year, and surely nobody would do anything in the heat of the summer anyway? So much for my skills as an economic forecaster.

I’m back to find the Fed reinvesting the proceeds from maturing mortgage-backed securities – after what seems to have been a pretty lively FOMC meeting on the 10th – with no change to the steady decline in the economic data.

What strikes me is how continuously bad the news has been in the last month, with no progress in the labour market, and series such as today’s new home sales still hitting record lows. Read more

Five-year Treasuries can be added to the growing list of US government debt being auctioned at record low yields. They join two- and three-year Treasuries in this unusual attribute.

The auction was agreed at a high yield of 1.374 per cent – a staggering 42bp drop from last month’s yield of 1.796 per cent. That’s a fall of 23 per cent. Read more

Breathe easy: Luxembourg’s banks have performed well in a national stress test. The two larger banks, Dexia and KBC, performed well in Europe-wide stress tests earlier in the year, so you’ll be forgiven for having been quite unconcerned about the small state’s banking sector.

The scenarios were concocted a while back, it seems. Of the four shocks, falling property prices or falling EU GDP have the greatest negative impact on the banks’ capital ratios. The good news is that the ratios remain comfortably above 4 per cent in each case. The bad news is that the shocks are independent, and it is more than plausible that house prices would fall and growth reverse at the same time. After all, we’ve seen that before, quite recently. Read more

S&P joins Fitch in placing Ireland on a sovereign rating of AA- today; Moody’s rating remains a notch higher at AA. Ireland keeps its second position in the PIIGS’ line-up, however, which runs broadly: Spain, Ireland, Italy, Portugal and then Greece. Play with the graphic below for more.

The Bank of Thailand has raised the policy rate to 1.75 per cent from 1.5 per cent, citing faster-than-expected growth in Q2 in spite of the domestic political situation. Growth is expected to slow in the second half, said the Bank, and inflation is expected to remain low for 2010. However, the rising cost of production is set to push inflation up in 2011, possibly above the target range, and this is the main driver for the rate change. The move was widely expected.