Posted on 05 Feb 2009
China data showing signs of recovery; Russia's rating cut
Improved manufacturing data from China on Wednesday suggested its downturn may be bottoming out and U.S. employment figures were not quite as bad as forecast, but crisis-hit Russia's sovereign debt rating was cut.
The Russian debt rating downgrade sent the euro tumbling against the dollar and the yen, due to fears of a steep economic downturn across much of central and eastern Europe.
The euro zone services Purchasing Managers' Index of around 2,000 companies covering banks to cafes rose to 42.2 in January from 42.1 in December. The downturn worsened in Germany and Spain but slowed markedly in France and Italy.
The financial crisis, stemming from a collapse in risky U.S. home loans which devastated the banking sector, has pushed the United States, euro zone, Britain and Japan into recession.
Russia has been as hard hit as most with foreign capital fleeing its shores. Ratings agency Fitch downgraded Russia's sovereign debt rating to 'BBB' and said further cuts were possible.
“The downgrade reflects the negative impact on Russia from the fall in commodity prices and the dislocation to global capital markets that has left Russian banks and companies struggling to refinance external debt,” said Edward Parker, Head of Emerging Europe in Fitch's Sovereigns team.
The agency also said it was concerned by the depletion of Russia's reserves, which have shrunk by a third, or around US$200 billion, since August as Moscow sought to control a slide in the rouble and compensate for record capital outflows.
The cut brought Fitch in line with rival Standard and Poor's, which cut Russia to two notches above a “junk” rating in December. But analysts were worried about the wider region.
“Increasing concerns over Russia and central Europe must be watched very closely. A slowdown in that region has negative implications for European banks,” said Ian Stannard of BNP Paribas.
Some western European banks have lent heavily into the region and Russia had been a big buyer of euro zone exports when oil prices were high.
The dollar held its gains against the euro after the U.S. employment data. ADP Employer Services said private employers cut 522,000 jobs in January — slightly fewer than forecast — after a revised 659,000 jobs were lost in December.
