German Manufacturing Declines, UK Ratings Downgraded

Arthi Gupta
14 Dec, 2012
New York City

The euro zone private sector contraction eased in December. French ratings were affirmed but the UK ratings downgraded to negative. New car registration in the EU slumped in November.

[R]1:30 PM Frankfurt – The euro zone private sector contraction eased in December. French ratings were affirmed but the UK ratings downgraded to negative. New car registration in the EU slumped in November.[/R]

European leaders wrapped a two-day summit and made a halting progress as leaders postpone decision making keeping in view the next election cycle.

The leaders approved the euro zone wide banking union but failed to agree on the size of the rescue fund to solve future problems banks blowing into a national crisis.

German Chancellor Angela Merkel stressed at a press conference after the marathon talks that the size of rescue fund is likely to be less than 20 billion euros and not as large as 100 billion euros. The smaller size of the rescue fund will restrict the European Central Bank’s ability to make a dent in the future banking rescue efforts.

In economic news, the latest survey of businesses in manufacturing and services industry indicated another month of growth decline.

The Purchasing Managers Index tracked by a private researcher Markit showed the index in December increased to 47.3 from 46.8 in November. The index below 50 still indicates a decline in activities.

UK and France Ratings Outlook Negative

Standard & Poor''s revised its outlook on the unsolicited long-term ratings on the United Kingdom to negative from stable but affirmed the ''AAA/A-1+'' long- and short-term unsolicited sovereign credit ratings.

The agency said there is a one-in-three chance that the UK could lose its top rating within the next two years, if the country''s economic and fiscal performances weaken beyond current expectations.

In another report, Fitch Ratings affirmed France''s triple-A rating citing its stable political and social institutions and an exceptional financing flexibility but maintained negative outlook.

In Paris trading, the CAC-40 Index rose 0.47 or 0.01% to 3,643.69 and in Frankfurt the DAX Index gained 22.55 or 0.3 % to 7,604.33.

For the week, the CAC-40 Index gained 1.1% and the DAX Index rose 1.2%.

The yields on Spain’s benchmark dropped five basis points to 5.31%. Italian 10-year yields fell six basis points to 4.59%.

Euro Zone Inflation Slows

Euro zone annual inflation eased to 2.2% in November from 2.5% in October, final data from Eurostat showed today. A year earlier the rate was 3%.

On a monthly basis, inflation fell 0.2% in November.

EU annual inflation declined 2.4% in November from 2.6% in October. A year earlier the rate was 3.3%. Monthly inflation fell 0.1% in November.

In a separate report, the number of persons employed decreased 0.2% in both the euro area and the EU27 in the third quarter compared with the previous quarter, according to Eurostat, the statistics office of the European Union.

In the second quarter, employment was stable in the euro area and increased 0.1% in the EU27.

Compared with the same quarter of the previous year, employment fell 0.7% in the euro area and 0.5% in the EU27 in the third quarter.

Euro Area Private Sector Activity Eases

The Euro zone composite Purchasing Managers'' Index rose to a nine-month high of 47.3 in December from 46.5 in November, survey results from Markit Economics showed today.

The flash services PMI climbed more than expected to 47.8 in December from 46.7 in November. The manufacturing PMI rose to 46.3 in December from 46.2 last month.

Separately, Germany''s private sector expanded in December, Markit Economics said.

The flash composite output index came in at 50.5 in December, an improvement on 49.2 in November.

The services Purchasing Managers'' Index rose to 52.1 in December from 49.7 in November. The manufacturing PMI fell unexpectedly to 46.3 in December from 46.8 in the prior month.

In another report, the downturn in French private sector output continued in December.

The flash composite output index rose to 45 in December, a 4-month high, from 44.3 in November.

European New Car Sales Slump

New car registration in the European Union fell 10.3% annually to 926,486 units in November, the European Automobile Manufacturers'' Association said today.

New car registrations in November were up 11.3% in the UK, while declining in all other significant markets. Sales fell 3.5% in Germany, slumped 19.2% in France, plunged 20.1% in Italy and plummeted 20.3% in Spain.