Could China raise interest rates this weekend?

Publication date: 5 July 2011
Author: Mark Bolsom, Travelex

Risk appetite has weakened after reports that China could raise interest rates this weekend and that the country could be underestimating the number of bad loans held at local banks. The news has helped to weaken equity markets across Asia and has helped lift the US dollar. Trade in the dollar was quiet with US markets closed yesterday for a public holiday.

The euro has seen some small selling pressure after S&P rating agency said yesterday that it would consider voluntary roll over of Greek debt as a default. The euro’s downside has been protected by this week’s European Central Bank MPC meeting where markets widely believe the central bank will raise interest rates by 25-basis points.

Today, PMI service sector surveys will be revised. No change is seen in the EU revision. Retail sales for the euro zone are also due out today; forecasts see the data slipping into negative territory after a strong gain in the prior month. In the UK, a construction survey seen yesterday weighed on sterling after the release showed that the pace of growth had slowed.

Today, CIPS PMI service sector survey is forecast to remain in expansion territory, but also show that the pace of expansion is slowing. US factory orders come later in the day and could help shift negative sentiment if the data is released in line with the 1% gain expected.

•United Kingdom
CIPS PMI Services

•Euro zone
Retail Sales
French PMI Services
Euro zone PMI Services

•United States
Factory Orders

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