Industrial Production

Financial Markets…The Standard & Poor’s 500 Index added 0.1% in Friday morning trade and the dollar weakened 0.2% versus the euro after a U.S. Labor Department report showed a slightly slower than expected employment growth in December. The S&P500 has advanced 4.1% this week, gearing for its largest weekly gain in 13 months.

10-year U.S. Treasury yields rose 4 basis points to 1.95%, paring some losses after climbing to a nine-month high of 1.97% before a government report on U.S. employment. Treasuries extended losses yesterday as investors feared the possibility of U.S. Federal Reserve ending its $85 billion monthly bond purchase program sometime this year.

Developing-stock markets fell for the first time in 10 days, with the benchmark MSCI index sliding 0.6% from a 17-month high closing yesterday, after Fed policy makers said they may end their stimulus monetary policy. Emerging-market stocks jumped 108% during the first round of so-called quantitative easing, and they have advanced 9.5% since the U.S. Federal Reserve announced a third round on September 13.

High-income Economies…U.S. nonfarm payroll employment rose 155,000 in December, below the 161,000 increase in November, with a slower pace of increase in private sector employment and a drop in public sector employment. The unemployment rate held steady at 7.8% in December.

U.S. factory orders were flat in November, following a 0.8% (m/m) rise the previous month. However, nondefense capital goods order excluding aircrafts – a proxy for future business investment – rose a robust 2.6% (m/m) following a 3% rise the previous month. The ISM non-manufacturing index for the U.S. index rose to 56.1 in December (the highest reading since February) from 54.7 in November.

Euro Area consumer price inflation remained steady at 2.2% (y/y) in December according to preliminary estimates, the same rate as November, as a weakening pace of year-on-year increases in energy prices was offset by a slight pickup in food and services inflation. The overall inflation rate remains above the European Central Bank’s 2% target.

Markit’s services Purchasing Managers’ Index (PMI) for the Euro Area rose to 47.8 in December from 46.7 in November, suggesting a slower pace of contraction in services sectors (An index level below 50 indicates contraction). Despite an earlier reported modest decline in the manufacturing PMI (to 46.1 from 46.2), a composite index that includes both manufacturing and services rose to 47.2 from 46.5 in November.

Services PMI for Germany rose above the 50-mark to 52.0 in December from 49.7 in November. PMIs rose in Italy (to 45.6 from 44.6) and Spain (to 44.3 from 42.4), but fell in France (to 45.2 from 45.8). Services PMI for Ireland fell to 55.8 from 56.1, but indicating a still robust pace of expansion.

German retail sales rose 1.2% (m/m) in November, almost reversing a 1.3% drop the previous month. Retail sales were 0.9% lower than a year earlier in November.

Developing Economies…China’s HSBC business activity index for service sector declined to 51.7 in December from 52.1 in November suggesting a continued, but somewhat weaker expansion of service sector activity in December compared to November. An earlier survey by China Federation of Logistics and Purchasing (CFLP) and the National Bureau of Statistics suggested that that China's service sector growth accelerated to a four-month high in December.

Residential property prices in China increased for the first time in nine months in December, though at a marginal rate, indicating that the property market is on a recovery path. The house price index, which measures the average cost of a new home in 100 major cities, moved up 0.03% on an annual basis in December, ending eight months of declines.

Inflation in the Philippines edged up to 2.9% in December from 2.8% in November, mainly on the account of higher inflation for food, beverages and tobacco. The annual average inflation rate in 2012 at 3.1% was the lowest registered over the past five years. Inflation in 2012 was also significantly lower than 4.7% attained in 2011.

Brazil's industrial production decreased 1% (y/y) in November following a 2.5% growth in October, pulled down by decrease in production of capital goods. On a monthly basis, industrial production also fell by 0.6% in November.

Meanwhile, Brazil’s Markit Economics activity index for services sector, which increased to 53.5 in December from 52.5 in November, suggests that service sector expanded at the fastest rate in nine months in December.

Financial Markets…U.S. Treasuries slid for the first time in four days, with the benchmark note yields 3 basis points to 1.62%, as a government report showed U.S. employers added more than forecasted jobs in November. U.S government bonds have advanced 2.8% this year as of yesterday, after gaining 9.8% in 2011 and 5.9% in 2010.

The Eonia swap rate (an estimate of compounded overnight borrowing costs in euros over the next three months) fell to 4.5 basis points on Friday, the lowest level since July, as investors speculated the European Central Bank is open to cut interest rates further. And the 3-month euro interbank offered rate (or Euribor), bank-to-bank lending rate, fell at a record low of 0.187%.

The dollar strengthened against the yen and euro following encouraging U.S. jobs data, climbing 0.3% to 82.66 yen and 0.4% to $1.2913, respectively. Meanwhile, Canadian dollar rallied versus its U.S. counterpart, climbing 0.3% to 98.82 cents per U.S. dollar, as the country’s unemployment rate fell to 7.2% from 7.4% last month.

High-income Economies…U.S. nonfarm payroll employment rose by 146,000 in November, suggesting that the impact of Hurricane Sandy on overall U.S. employment had been limited. But the rate remains well below the 200,000-250,000 monthly gains needed for a sustained improvement in the labor market as employers remain reluctant to hire amid U.S. “fiscal cliff” risks. The unemployment rate, however, edged down by 0.2 percentage points to a four-year low of 7.7%, mostly because of people dropping out of the labor force.

Reflecting uncertainties relating to impending tax increases and spending cuts, the outlook of U.S. consumers deteriorated sharply in December, with the Thomson Reuters/University of Michigan consumer sentiment index falling to 74.5 in December, the lowest since August, from 82.7 in November.

German industrial production fell 2.6% (m/m) in October, a faster pace of decline compared with a 1.3% drop in September, suggesting that the Euro Area debt crisis is taking a toll on Europe’s largest economy. Earlier data had shown that industrial orders were supported by strengthening foreign demand (partly from developing countries), but domestic demand has continued to weaken.

U.K. industrial production fell 0.8% (m/m) in October, a slower pace of decline than the 2.1% monthly fall in September. On a year-on-year basis, industrial output was 3% (y/y) lower in October, compared with -3.2% (y/y) in September.

Revised data showed that Greek GDP shrank a slightly smaller 6.9% (y/y) in the third quarter, compared with a 7.2% decline reported earlier.

The pace of economic contraction in Czech Republic accelerated in the third quarter to an annualized pace of about 1.2% (q/q) from 0.8% recorded in the second quarter. On a year-on-year basis, Czech Republic’s GDP contracted by 1.3% (y/y) in the third quarter of 2012, compared with 1% (y/y) decline in the second quarter.

Hungary’s GDP continued to contract in the third quarter at an annualized pace of about 0.8% (q/q). On a year-on-year basis, Hungary’s GDP contracted by 1.5% (y/y) in the third quarter of 2012, compared with 1.2% (y/y) declined in the second quarter.

Developing Economies…The Central Bank of Egypt held its benchmark overnight deposit rate steady at 9.25%. Headline inflation rose to 6.7% in October from 6.22% in September on a sharp rise in the prices of butane gas cylinders, partly due to bottlenecks in distribution channels, despite moderating food prices.

Brazil’s inflation accelerated insignificantly in November to 5.53% (y/y) from 5.45% in October with the prices of all key components in consumer basket showing insignificant rise.

Chile’s inflation moderated to 2.1% (y/y) in November from 2.9% in October.

Mexico’s inflation moderated to 4.18% in November from 4.6% in October on easing of food prices following a temporary spike related to adverse weather and the outbreak of avian flu in western Mexico.

Peru's central bank held its policy rate unchanged at 4.25%. Peru's inflation rate slowed to 2.66% in November under the central bank’s 3% inflation target from 3.25% in October on moderating food prices.

Malaysia's exports fell 3.2% (y/y) in October from 2.6% increase in September  on continued weak demand from major trade partners and moderating prices for Malaysia's commodity exports (palm oil and crude rubber).

Financial Markets…Year-to-date global corporate bond sales rose to $3.43 trillion, already surpassing 2011’s full year total of $3.29 trillion, as further stimulus from global central banks pushed yields to record lows. Funding costs for the riskiest to the most creditworthy corporates are plunging as the persistent low-yield environment spurred unprecedented investor demand.

Perceived default risk of US corporate debt climbed for a third consecutive day, with the benchmark Markit CDX North America Investment Grade Index rising 3.6 basis points to 108 bps, amid growing concerns that the so-called US fiscal cliff could push the world largest economy into deep recession.

Ghana’s 3-month borrowing costs, which fell to a five month low last week, are gearing for further decline today after the central bank issued record volume of domestic bonds, lowering its financing needs in near-terms. The 3-month yield on Ghana’s Treasury bills dropped 69 bps to 22.33% last week, but they are still the highest among African countries.

In its November update released earlier today, the US Department of Agriculture reported marginal increases in global grain supplies (compared to the October update) for the 2012/13 crop year ending in May 2013. Yet, stock-to-use ratio for corn—and less so for wheat—remain at historical low levels. The rice market is well-supplied with trade expected to surpass 38 million tons in 2012—a record high.

High-income Economies…France's industrial production posted the biggest monthly drop since December 2009, falling 2.7% (m/m) in September (-2.1% y/y), with both manufacturing production and construction contracting. The Bank of France said the economy may shrink in the fourth quarter.

Italy’s industrial production fell by 1.5% (m/m) in September (-4.8% y/y), the most in five months, suggesting the country remained in recession in the third quarter.

Greece’s industrial production fell 7.3% (y/y) in September, resuming its downward trend after rising temporarily by 2.5% in August.

Sweden’s industrial production fell 5% (y/y) in September, following a 2.7% increase the previous month.

Germany’s annual consumer price inflation on a EU-harmonized basis remained at 2.1% (y/y) in October, the same rate as September (+0.1% m/m). A 5.5% (y/y) increase in domestic gas and diesel prices and increases in some food items prevented inflation from falling.

UK’s goods trade deficit fell to 8.4bn pounds in September from 10bn pounds in August, as exports rose 1.1% (m/m), while imports fell a larger 3.9% (m/m) because of lower imports of fuel and manufactured goods.

US consumer confidence continued to improve for the fourth month in November, with the Thomson Reuters/University of Michigan consumer sentiment index climbing to 84.9 (a five-year high) from 82.6 in October as the labor market showed signs of improvement.

Hungary’s industrial output rose 0.6% (m/m) in September, following 1.8% increase in August. Despite the monthly increases, industrial output in September was 3.8% lower than the same month the previous year.

Developing Economies…China’s retail sales rose 14.5% (y/y) in October slightly faster than 14.2% in September, while consumer price inflation dropped to its weakest level in nearly three years to 1.7% (y/y) in October from 1.9% in September on declining food inflation.

Growth in China's industrial production accelerated to 9.6% (y/y) in October from 9.2% in September China’s producer prices fell at a slower pace of 2.8% (y/y) in October compared to a 3.6% fall in September. China's total fixed asset investments were 20.7% higher during the January-October period compared to the same period last year.

Malaysia's exports grew 2.6% (y/y) in September, recovering from a 4.5% contraction in August on strong demand from ASEAN, the US, India and Taiwan, while exports to the European Union decreased 12.5%. Import growth accelerated to 9.6% (y/y) in September from 2.8% in August.

The central bank of Peru held its benchmark interest steady at 4.25%. Peru's inflation rate fell to 3.25% (y/y) in October from 3.74% in September, but remains above the central bank's targets inflation of 2.0% (+/- 1). An acceleration of inflation in September was related to a weather conditions-related temporary supply side factor.

Russia's central bank held its benchmark refinancing rate steady in October. Inflation declined in October slightly to 6.5% (y/y) from 6.6% in September, but remains above the Bank of Russia's target of 5-6 percent inflation range. The bank noted that inflation is stabilizing due to a moderation in food prices which had experienced a temporary upswing related to a supply shock associated with a bad harvest.

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.