The eurozone’s private sector contracted this month for the first time in two years as the escalating sovereign debt crisis and turmoil in global markets suppressed growth.
The Flash Markit eurozone services purchasing managers’ index, which measures the business activity of thousands of firms across the 17-nation area, sank to 49.1 this month from August’s 51.5, far below market consensus expectation of 51.
This is the first time the index has fallen below the 50 mark since August 2009. A reading below 50 indicates that the sector is experiencing contraction while a reading above 50 signifies growth.
As anticipated, the US Federal Reserve Bank announced on Wednesday that it would be buying $400 billion in long-term government bonds by mid-2012 and, in return, it would be selling an identical volume of short-dated bonds with up to three years remaining until maturity.
In doing so, the Fed hopes to push yields on the long end of the yield curve lower, in order to provide continued support for the continuing faltering economy.
It also announced that proceeds from maturing bonds of the state-owned real estate financiers Fannie Mae and Freddie Mac, as well as proceeds from mortgage-backed securities (MBS) would be reinvested in such instruments starting in October.
Other US economic data was relatively mixed, with stronger than expected building permits (620,000 in August versus an expected 590,000, as compared to July’s 597,000 permits) and weaker than expected housing starts (571,000 for the month versus an expected 590,000, and 604,000 for July).
In the UK, consumer confidence slipped to a four-month low in August as the economy remained weak, the monthly Nationwide survey showed last week.
Rioting in English streets during the month as well as continued global economic uncertainty dropped the reading to 48, versus 49 in the previous month. Yet August’s reading was better than analysts’ expectations of a 47 reading.
This article was compiled by Bank of Valletta plc for general information purposes only.