Wary anticipation gloomed the financial markets as eyes are directed towards today’s scheduled announcement of the Federal Bank’s interest rates. Growing expectations predict that the bank tends to further ease monetary policy; and attention will continue tracking the decided rate announced by the European Central Bank. Hopes are up for the Bank declaring its willingness to buy Spanish and Italian bonds in an attempt to control the surge in Spanish bond yields, which reached very serious levels. Today, European economies will announce the industrial Purchasing Management Index, which shrank rapidly, worsening in the course of a deep crisis of the European debt.
Attention of investors is currently focused on the developments of the European crisis, away from the basic data, which increases the frustration of investors. Unemployment rate rose yesterday to new heights, recording 11.2% from the previous 11.1%, and today we are expecting the final reading for the industrial sector performance, which was affected the most in this sovereign crisis debt.
It is expected that the final reading of the Industrial Purchasing Management Index in Germany through July will reach 43.3, and same index in the euro zone will be at levels of 44.1. It is also expected that there will be more frequent contractions of the sector in France reaching 43.6; and is also expected that the final reading of the index in Italy remains at 44.6.
Those contractions of the industrial sector in the euro zone came as an inevitable outcome of the marked decrease in global demand for European products (exports) amid worsening sovereign debt crisis that is glooming on the region along with Spain’s threats to request a comprehensive rescue plan. In addition, such contractions were affected by fears from the negative impact of the crisis on the pace of growth, which showed that the economic fragility is evident in the performance of global and European economies, and which was confirmed by China’s industrial sector today, as the pace of growth slowed in July to reach levels of 50.1 from 50.2 previously.
The main reason behind such contractions in the performance of the industrial sector in the euro zone is the deep cuts in public spending approved by European governments in order to reduce the deficit in their balance sheets. This has paralyzed life in the euro area, although it has not yet succeeded in calming the markets and reducing borrowing costs in these troubled countries. In addition, such cuts did not maintain the credit ratings of sovereign debt in many European countries, which lost its excellent credit rating, such as Spain during the last periods.
Dear reader, you should take into consideration the likelihood of negative adjustment to the final reading for the industrial PMI more frequently, which will add further negative effects on European markets and on the euro, which is trying to recover ahead of Federal rate decision today, and the U.S. Employment job index.
Finally, UK finance will announce today its industrial PMI, which is expected to record a stable contraction value at 48.6, and this amid deep recession suffered by the economy that took place in the economic stagnation circle for the third quarter in a row, after the largest cuts in public spending since the war the Second World.
Yesterday, Moody's lowered its expectations for the growth of the UK economy, and pointed out that the economic conditions and future expectations associated with the fiscal policy have deteriorated along with worsening European debt crisis. Moody's kept its outlook for the credit rating of sovereign debt as "negative", after downgrading it earlier at -AAA.
After the contraction of UK economy during the second quarter by 0.7% third quarter in a row, amid the critical economic situation, and after the adoption of the largest cuts in public spending since World War II, the agency has developed forecasts of future growth by 0.4% during the year 2012, and by 1.8% during the next year .