Canada

The Prospects Daily will be on Winter recess and will resume on

Wednesday January 2nd, 2013.

Financial Markets…Global equities declined and US Treasuries gained after the Congress failed to agree on a plan to allow higher taxes on those earning more than $1 million as budget talks stalled. The MSCI All-Country World Index dropped 0.8% at 10:44 a.m. in New York and the Standard Poor’s 500 Index slumped 0.9%. The Stoxx Europe 600 Index slid 0.4%, falling from a 19-month high. US Treasuries rose, with the yield on 10-year Treasuries decreasing five basis points to 1.75 percent.

The MSCI Emerging Market Index slid 1.1%, its biggest drop in more than five weeks. China’s stocks retreated from a four-month high on concern that the rally from the beginning of this month was excessive. The Shanghai Composite Index fell 0.7%. India’s Sensex slid 1.1%.

High-income Economies…US durable goods orders rose 0.7% (m/m) in November, following an upwardly revised 1.1% gain in October. Orders for capital goods excluding defense and aircraft – a proxy for future business investment – rose 2.7% (m/m) building on an upwardly revised 3.2% gain in October.

US consumer sentiment, however, slumped in December, with the Thomson Reuters/University of Michigan consumer sentiment index falling sharply to 72.9 from 82.7 in November, reflecting consumers’ concerns about uncertainty over negotiations on tax hikes and spending cuts that are set to come into effect in the new year.

UK GDP growth for the third quarter was revised slightly down to 0.9% (q/q) (implying an annualized rate of 3.6% q/q) from the earlier reported 1.0%. Despite the downward revision, this was the UK economy's best performance since the second quarter of 2010.

Denmark’s GDP grew at an annualized 1.2% (q/q) in the third quarter, following a 2.8% annualized decline in the second quarter.

Canada’s consumer price fell to the lowest in three years in November, declining to 0.8% (y/y) compared with 1.2% in October. On a monthly basis, prices fell 0.2% due to declines in fuel costs and automobile prices. Inflation is now below the central bank’s 1%-3% target range.

Poland’s retail sales growth slowed to 2.4% (y/y) in November from 3.3% in October, falling 6.4% (m/m), pointing to a slowing consumer demand amid high unemployment. Poland's unemployment rate rose to 12.9% in November from 12.5% in October.

Developing Economies…Argentina's industrial production dropped 1.4% (y/y) in November and declined 2.1% (m/m) versus October, due to slowing down of Brazilian demand for Argentine automobiles as well as decline in investment and domestic demand.

Brazil's unemployment rate dropped to 4.9% in November from 5.3% in October. November figure was the lowest since December 2011, when the jobless rate was 4.7%.

Colombia’s GDP growth slowed to 2.1% (y/y) in the third quarter from 4.9% in the second quarter, to a large extent due to a 12.3% drop in construction. On a quarterly basis Colombian economy contracted 0.7% (q/q) in the third quarter. The Government of Colombia lowered economic growth forecast for full-year 2012 to 4-4.5%, due to weak expansion in the third quarter, from a previous targeted 4.8%.

Financial Markets… The euro rose to a six-week high against the dollar, appreciating to $1.3077, and Europe’s benchmark stock index (Stoxx Europe 600) gained for a second day, as growing optimism over a successful Greek buyback program boosted investor sentiment. Greece started the €10 billion ($13 billion) repurchase of government bonds maturing between 2023 and 2042 on Monday.

Italian and Spanish bonds advanced on Tuesday, with their 10-year yield dropping 4 basis points to 4.41% and 2 bps to 5.22%, respectively, as Greek optimism boosted demand for high-yielding region’s government debt into year-end. Meanwhile, Greek bonds turned slightly lower after Monday’s surge with results of the debt buyback due on December 7.

Gold for February settlement fell 0.9% to $1,705 an ounce on Tuesday, after falling a four-week low of $1,698.50 earlier, as concern over U.S. economy amid stalled budget talks weighed negatively on commodity prices. Copper for delivery in three months also dropped as much as 0.5% to $7,963.50 a metric ton, after reaching a six-week high of $8,045 yesterday.

High-income Economies…The Reserve Bank of Australia cut its benchmark interest rate by a quarter percentage point to 3%, the lowest in three years. The sixth rate cut in the past 14 months reflects Australia’s contained wage pressure, lower projected mining spending, and an unemployment rate at a 2½-year high—as well as concerns that the Australian dollar remains “higher than might have been expected” given lower export prices and a weaker global outlook, according to the central bank.

Producer prices in the Euro Area rose 0.1% (m/m) in October from the previous month, but producer price inflation edged down to 2.6% (y/y) in October from 2.7% in September due to base effects. A deceleration in energy-cost growth to 5.9% (y/y) in October from 6.9% in September was offset by acceleration in price increases for intermediate and non-durable consumer goods, partly reflecting strengthening demand.

Canada’s central bank kept its benchmark overnight rate at 1%. In explaining its decision, the central bank said that although economic activity in the third quarter was weak, global economic conditions remain stimulative (though vulnerable to major shocks from the U.S. or Europe) and the pace of Canada’s economic growth is expected to pick up through 2013, while inflation is expected to increase and reach the targeted 2 percent rate over the course of the next 12 months.

The number of people registering for unemployment benefits in Spain rose for the fourth month in November, rising by 74,296 from October to reach 4.91 million, as some firms used newly introduced labor rules to reduce the size of their workforce.

Developing Economies…Brazil’s industrial production increased by 2.3% (y/y) in October compared to a one percent decline in September. On a monthly basis, industrial production rose by 0.9% in October reversing a one percent decline in September.

China and South Korea agreed to use proceeds of existing currency swap deals to settle bilateral trade between two countries.

Malawi continues to be an outlier from the global policy easing cycle, as it continues to tighten monetary policy to achieve macroeconomic stability, raising the policy rate by 400 basis points to 25.0%. Foreign exchange reserves have been falling since July, to an alarming level equivalent to 0.8 months of import cover as of end-October. Inflation rate rose to 30.6% (y/y) in October, up from 28.3% in September, with food price increases accounting for the bulk of the increase in inflation.

Uganda's central bank cut its Central Bank Rate (CBR) by 50 basis points to 12.0% as subdued inflationary pressure allows the bank to stimulate economic growth. November headline inflation rose to 4.9% from 4.5% in October, but remains within the central bank’s 5% medium-term inflation target.

Financial Markets…Global stock markets fluctuated between gains and losses, following three consecutive days of losses last week, as strong Chinese exports data in October offset worries over a prospect of the so-called U.S. fiscal cliff and Greek woes. The benchmark MSCI global equity index just slipped 0.04% in afternoon trading.

Spanish government bonds declined on Monday, pushing the benchmark 10-year yield to 1-month high of 5.88%, as European finance ministers prepared to discuss Greek aid amid growing concerns that the region’s debt crisis remains unsolved. The country’s 2-year borrowing costs also rose, climbing 9 basis points to 3.21%.

The Greek government announced on Monday that the nation’s banks will recapitalize by issuing stocks and convertible bonds and must meet a core Tier-1 capital adequacy ratio of minimum 6%. According to the recapitalization terms, the shares will be sold at a discount and the bond will carry a 7% annual coupon rate with a 0.5% increase per year.

China will further expand its quota for Renminbi Qualified Foreign Institutional Investors (RQFII) to US$80 billion from US$30 billion. This will allow the qualified foreign investors to use offshore yuan funds for investing in the country's capital market.

High-income Economies…Japan’s GDP contracted 0.9% (q/q) and fell at an annualized 3.5% (q/q) pace in the third quarter of 2012, the first such decline in three quarters. Slowing global growth and a territorial dispute with China (Japan’s largest trade partner) resulted in a 5.0% (q/q) drop in Japan’s exports in Q3, accounting for 0.7 percentage points of the 0.9% output drop.

The OECD’s composite leading indicators suggest signs of stabilization in the US, Canada, and China in September, with the index for the US rising to 100.9 from 100.8 in August, and Canada’s and China’s unchanged at 99.7 and 99.4 respectively. However, the Euro Area faces weaker growth prospects as leading indicators for the two largest Eurozone economies, Germany and France, fell, while prospects for Italy improved.

Germany’s wholesale price inflation rose to 4.6% (y/y) in October from 4.2% in September, mostly due to base effects. On a monthly basis, however, the index fell 0.6% (m/m), as a fall in fuel and mineral oil prices (driven by a drop in crude oil prices) offset a monthly increase in food prices.

Estonia’s GDP rose by 1.7% (q/q) in the third quarter of 2012, with year-on-year growth accelerating to 3.4% (y/y) from 2.2% in the second quarter. Construction, information and communication activities contributed the most to the GDP expansion.

Developing Economies…China’s October export growth accelerated to 11.6% (y/y) from 9.9% in September. October imports were up by 2.4% y/y – unchanged from September. China's October trade surplus increased to US$31.99 billion from September’s $27.67 billion. China's October bank lending eased to 505.2 billion yuan from September’s 623 billion yuan and M2 growth also slowed down to 14.1% (y/y) from September’s 14.8%.

India's industrial output contracted by 0.4% (y/y) in September compared to a 2.7% (y/y) growth in August, largely on account of a 12.2% decline in the capital good production. Meanwhile, the country's trade deficit hit a record high $20.96 billion in October with exports falling by 1.63% (y/y), while imports rose by 7.4%.

Mexico's industrial output revived in September growing at 0.9% (m/m) compared with a 0.8% contraction in August following a pick-up in US industrial activity and on the back of strong performance in manufacturing. Mexico’s industrial growth on an annual basis at 2.4% (y/y) in September is still below a 3.6% increase recorded in August.

Peru recorded a trade surplus of US$403 million in September after falling into a US$52 million deficit in August.

Romania's annual inflation slowed to 5% (y/y) in October from 5.3% in September on lower pace of increase in food prices. Inflation rate is still above the 2-4% annual target.

Russia’s GDP growth slowed to 2.9% (y/y) in the third quarter compared with a 4% growth in the second quarter, on weak external demand and a poor harvest related to a severe drought.

Financial Markets…European stocks slipped on Friday with the benchmark index falling to a three-week low as early optimism on Spain’s new austerity measures was short-lived.

Spanish 10-year bond yield rose back above 6% amid uncertainty over its troubled banks before stress test results, fading optimism on the country’s debt cutting plan, and a looming Moody’s rating review which may cost the country its investment grade rating. 

South Africa's rand weakened against the dollar after Moody's cut the government's bond rating by one notch to Baa1 from A3, but bonds were supported by their imminent accession to Citi's World Government Bond Index (WGBI) on October 1.

High-income Economies…France’s government announced its 2013 budget that includes a package of tax hikes, including a 75% tax rate for people earning more than 1 mn euros, aimed at narrowing the deficit to 3.0% of GDP in 2013 from 4.5% this year.

Euro Area consumer price inflation accelerated to 2.7% (y/y) in September from 2.6% in August according to a Eurostat flash estimate, driven mainly by an increase in Spain’s inflation to 3.5% (y/y) from 2.7% in August after the government increased its value added tax (VAT) from 18% to 21%.

German retail sales edged up by 0.3% (m/m) in real terms in August (-0.8% y/y) after a 1% drop in July (-1.6% y/y), giving rise to hopes that private consumption will prop up the economy.

Canada's GDP rose 0.2%(m/m) in July (+1.9% y/y) compared to 0.1% (m/m) rise in June, as strength in manufacturing and utilities sectors offset weakness in crude oil extraction.

Japan’s industrial production fell 1.3% (m/m) in August as a slowdown in China and Europe weighed on exports, raising risks of a GDPcontraction this quarter.

South Korea’s industrial production fell 0.7% (m/m) percent, from weakness in trade partners and also due to a strike at Hyundai Motor Co.

Developing Economies…The Central Bank of Brazil increased its 2012 inflation forecast to 5.2% from 4.7%, while cutting only marginally its 2013 forecast to 4.9% from 5.0%.

Chile’s manufacturing output rose 6.8% (m/m) in August (3.6% y/y) as copper production rose by 11.3% from July. Retail sales growth accelerated to 11.3% (y/y) in August from 7.9% in July.

Democratic Republic of Congo’s central bank lowered its benchmark interest rate by 1.5 percentage points to 6%, citing macro-economic stability and inflation of close to 6% in August, lower than the targeted 9.9% for 2012.

The Central Bank of the Dominican Republic kept its monetary policy rate unchanged at 5.0% following interest rate cuts in June and August with a total reduction of 125 basis points this year.

Turkey's merchandise trade deficit declined significantly to US$5.86 bn in August from US$8.43 bn in August 2011 as goods export grew 14.5% (y/y) while imports declined 4.8% (y/y).

Thailand's industrial production index fell 11.3% (y/y) in August, declining for three consecutive months.

South African producer price inflation hit two year low level of 5.1% (y/y) in August, down from 5.4% in July.