94233 Daily Economic News – Feb. 4, 2015 AUTHORS Derek Chen (x-81602) Eung Ju Kim (x-85804) Mizuho Kida (x-31943) U.S. Treasuries fall on positive jobs data… U.S. private sector adds jobs in January… China Service PMI at 6-month low Financial Markets U.S. Treasuries yields climbed for a third on Wednesday as a report showed U.S. employment posted another solid gains in January, reviving speculation the Federal Reserve might hike policy rates in mid- 2015. The yield on benchmark 10-year securities rose as much as 6 basis points (bps) to 1.84%, the highest level since January 23. The 10-year yield surged 13 bps yesterday, the biggest single-day jump since November 2013. Meanwhile, the 2-year Treasury yield, which is more sensitive to markets’ perception on Fed policy, reached as high as 0.54%, the highest level in three weeks. Greece’s treasury bill sale met with the weakest demand since 2006 as the government struggles to strike a new debt deal with the Eurozone partners and avert a funding shortage. The country sold €813 billion ($929 million) of six-month bill at today’s auction with an average yield of 2.75%. The bid-to-cover ratio, which measure demand by comparing totals bids with the amounts of securities allocated, slid to a more-than 8-year low of 1.3. High Income Economies As temporary retail hires for the holiday shopping season ended, U.S. private sector employment growth slowed from an upwardly revised climb of 253,000 in December to an increase of 213,000 jobs in January, according payroll processor ADP on Wednesday. The latest reading was less than economists’ forecast of an increase of 223,000 jobs compared to the addition of 241,000 jobs originally reported for December. Expanding at its fastest pace since July 2014, the Eurozone private sector final composite output index rose from 51.4 in December to 52.6 in January, exceeding its earlier flash reading of 52.2. With output rising across manufacturing and service sectors, the index signaled expansion for 19 months running. Among member countries, output expanded in Germany, Italy and Spain, while contracted in France for 1 the ninth consecutive month. Despite slowing from a 0.7% (m/m) increase in November to a 0.3% increase in December, Eurozone retail sales beat economists’ forecast for a flat growth. This was the third consecutive increase in sales levels and saw both food products and non-food products each gaining 0.3%. On a yearly basis, retail sales growth accelerated from 1.6% (y/y) in November to 2.8%, beating the 2.0% forecast by economists. Developing Economies East Asia and Pacific China's HSBC/Markit Services Purchasing Managers' Index(PMI) slowed to a six-month low of 51.8 in January from December’s 53.4. A sub-index measuring new business eased to 52.5 in January, also a six-month low, but the sub-index measuring employment inched up as firms hired more workers for the 17th month in a row. The composite index, a measure of manufacturing and service sector activity, edged down to an eight-month low of 51 from 51.4 in December. Although remained above the 50-point indicating expansion in activity, the latest reading has raised expectations that policymakers may unveil more stimulus measures to avert a sharper slowdown in the world's second-largest economy. The People’s Bank of China cut the amount of reserves banks are required to set aside in an effort to boost liquidity and bolster the economy. The central bank said the reserve ratios will fall by 50 basis points on February 5th to 19.5%. “The most important reason for the cut is liquidity demand in the banking system,” a local economist said. China suffered its largest capital outflow on record in the fourth quarter last year, and its foreign exchange reserves fell as investors sold renminbi and bought foreign currency. Europe and Central Asia Romania’s central bank cut its monetary policy rate for the fifth consecutive session to a new low of 2.25% from 2.50%, as below-target inflation gave policymakers room to ease. The decision was in line with economists’ expectations. Since August last year, the central bank has lowere d the rate steadily from 3.5% in 25 basis points. Headline inflation slowed to 0.8% (y/y) in December from 1.3% in November, below market forecasts and a 1.5-3.5 percent target range for 2014 and 2015. You’ll find recent issues of this Daily and lots of other current analysis and high -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