93189 Daily Economic News – Oct. 20, 2014 AUTHORS Derek Chen (x-81602) Eung Ju Kim (x-85804) Mizuho Kida (x-31943) Moody’s cuts Russia’s credit rating… ECB starts buying Eurozone covered bonds…Russian investment falls again, confirming weak economic outlook Financial Markets Portugal led a sell-off in euro area’s high-yielding government bonds on Monday amid increased recession fears. The Portuguese 10-year bond yield soared 15 basis points (bps) to 3.46%, while the comparable Italian bond yield jumped 10 bps to 2.6%, extending last week’s rise of 17 bps. Greek bonds declined as well, extending losses that triggered a sell-off in the periphery last week. In contrast, safe- haven German bunds advanced, with the 10-year yield sliding 2 bps to 0.84%. Russia’s sovereign credit rating was lowered by Moody’s Investors Service on Friday from ‘Baa1’ to ‘Baa2,’ the second-lowest investment grade rating. The rating agency cited the country’s “subdued medium-term growth prospects” and the expanded western sanctions over Ukraine for the downgrade. The yield on the country international bonds due in 2030 rose 6 bps to 4.88%, and the Russian ruble weakened further today, falling 0.7% to 41.05 against the dollar. High Income Economies Launching its latest attempt to jumpstart the economy, the European Central Bank (ECB) began purchasing covered bonds on Monday. The purchases are the first in a bond-buying program which is expected to see the ECB place billions of euros of covered bonds and asset-backed securities on its balance sheet over the next two years in an attempt to revive lending and growth across the Eurozone. The purchases of asset-backed securities are expected to start later this year. With the services trade surplus decreasing substantially, the Eurozone current account surplus fell to a seasonally adjusted EUR 18.9 billion in August from EUR 21.6 billion in July. The surplus on trade in goods rose to EUR 15.3 billion from EUR 13.5 billion, while the surplus on services declined to EUR 7.8 billion from EUR 13.3 billion in July. Income increased to EUR 4.2 billion in August from EUR 3.7 billion a month ago and the deficit on current transfers narrowed to EUR 8.4 billion from EUR 8.9 billion in July. 1 Led by strong increases in shipments of machinery and electronic products, export orders in U.S. dollar terms for Taiwan, China rose 12.7% (y/y) in September. The latest reading far exceeds economists’ consensus for a 3.5% growth and the 5.2% increase in August. Shipments of machinery registered 21.4% surge in September, while exports of electronic products jumped 19.4%. Furniture exports grew 17.4%. Month-on-month, exports rose 13.4% (m/m) in September. Developing Economies Europe and Central Asia Russia’s capital investment fell 2.8% (y/y) in September, steeper than the 2.7% decline in August although less than the 3.0% decline expected by economists. Investment has fallen every month this year except June, underlining the weak outlook for an economy under pressure from Western sanctions. Meanwhile, retail sales picked up slightly, growing 1.7% (y/y) in September compared to 1.4% in August. Nominal wages also rose 6.9% (y/y) in September, but lagging inflation so that real wages fell 1.0% (compared to -1.2% in August).. You’ll find recent issues of this Daily and lots of other current analysis and hig h-frequency data on our GEM intranet website: http://go.worldbank.org/0TC32BNV30 See also our Prospects blog: http://blogs.worldbank.org/prospects The Daily Economic News is an informal briefing for Bank staff whose responsibilities require that they stay abreast of changes in global markets. The views expressed here do not reflect those of the World Bank Group. Feedback, and requests to be added to or dropped from the distribution list, may be sent to : dchen2@worldbank.org or gkambou@worldbank.org. 2