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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Paul Kern who wrote (73974)	11/10/2006 10:24:56 PM
From: CalculatedRisk	Respond to of 110194

Euro rates mimic U.S., sparking global slowdown fear Yield curve inversion, slumping copper price send a gloomy signal marketwatch.com NEW YORK (MarketWatch) -- Interest rates in Europe are starting to mimic U.S. rates, raising the question of whether a U.S.-led economic slowdown is already impacting global growth, analysts and economists said Friday. Euro zone short-term interest rates briefly topped long-term rates for the first time in over six years on Thursday, creating a so-called yield curve inversion. On Friday, short-term rates returned to stand slightly below long-term rates. Under normal circumstances, short-term rates -- which represent the price of borrowing money over a short-period of time -- are below long-term rates because lending money over a longer period of time carries more risk, mostly the value-eroding impact of inflation. Long-term rates that are below short-term ones have traditionally signaled a looming economic recession: As markets expect negative growth to cut inflation -- and to even possibly induce deflation, or falling prices -- the price of borrowing money over a longer time span drops. Analysts attributed the change in euro zone rates to expectations that the European Central Bank will deliver its last quarter-point hike of short-term rates in December. That's because they expect that inflation pressures will recede as the euro zone economy slows. "Most people believe that the last hike in interest rates will be in December," said Jay Bryson, international economist at Wachovia. "Euro zone growth appears to be slowing down, and inflation is slowing down." Boosting those expectations on Friday, France's GDP unexpectedly ground to a halt in the third quarter, according to the French statistics office Insee. See full story. This should at least raise the question of whether a housing market economic slowdown in the U.S. is going to spill over into Europe and the rest of the world. After all, U.S. consumption is one of the key drivers of global growth. MORE