Credit Rating agency Moody’s downgraded China for the first time in almost 30 years over fears that slowing growth and rising debts will weaken the world’s second largest economy. The downgrade from Aa3 to A1 puts China in the same category as countries such as Japan and Israel.
The downgrade reflects expectations that China’s economy will face a difficult couple of years, with economy-wide debt continuing to rise as potential growth slows. The announcement initially weighed on Asian markets, commodities and China’s currency on Wednesday.
Mario Draghi spoke in Madrid yesterday on financial stability and commented that the Euro area recovery is increasingly solid, so there is no need to deviate from guidance. Draghi said that the recovery was driven largely by a virtuous circle of employment and consumption, although underlying inflation pressures remain subdued.
The ECB President did however step up his commitment that the European Central Bank will end asset purchases before increasing interest rates. Economists believe the central bank is preparing to discuss the path toward normalisation of its unconventional stimulus policies, amid a euro-area recovery that is becoming more and more solid and wide-spread.
The Fed minutes, released overnight, showed that most FOMC participants viewed any slowing in activity and inflation as driven by transitory factors. Policymakers want to see proof that the country's economic slowdown is temporary before raising interest rates.
Markets have been expecting a rate rise at the Federal Reserve's June meeting, and the dollar dipped following the release of the minutes. Most officials on the FOMC still expect to raise interest rates "soon", however they are divided about what action they should take in the future.
Some members said there might be need for a more gradual approach to raising interest rates, noting that inflation has failed to accelerate as expected.
The minutes also showed that the Federal Reserve remains on track to reduce its nearly $4.5 trillion portfolio, much of which is in US treasuries and mortgage-backed securities. The holdings are a legacy of actions taken after the financial crisis, when the bank bought up securities to boost the economy. The bank's holdings have been steady in recent years, and members said they would maintain current policies but expected to discuss in more detail how to start winding down the portfolio at their next meeting in June.
09:30 – GBP - Second Estimate GDP is expected to remain at 0.3%
13:30 – USD - Unemployment Claims expected to increase to 238k
All Day – ALL - OPEC Meetings