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Prospects Daily: Emerging market equities climb to six-month high, while Germany posts strong trade performance in 2011

Global Macroeconomics Team's picture

Important developments today:

1. Emerging market equities climb to six-month high on Greek debt-talk progress

2.  Notwithstanding a weak Q4, Germany posts strong trade performance in 2011


Emerging market equities climb to six-month high on Greek debt-talk progress. Developing-country stocks extended gains on Wednesday, heading for the highest close in six months, amid speculation that Greek political leaders are making progress on austerity measures needed to secure a second bailout from international creditors. Growing expectation that slowing inflation will make way for China to adopt lax monetary policy also weighed positively on investors’ sentiment. The benchmark MSCI Emerging Market Index advanced 1.1% today, heading for the highest level since August 4th, with Chinese shares leading the rally. EM stocks markets have climbed 9.2% this year, after 15.6% drop in 2011, while stocks in developed markets have gained 6.7%, recovering some of 8.4% slump last year. Meanwhile, the extra yields on emerging-market sovereign hard-currency bonds over comparable U.S. government bonds tightened by 4 basis points (bps) to 381bps, according to JPMorgan & Chase’s EMBIG index.

Notwithstanding a weak Q4, Germany posts strong trade performance in 2011.  Against the headwinds of the European debt situation and slowing global demand, foreign trade activity in Germany fell in December: exports by 4.3% (m/m, sa) and imports by 3.9% [see Chart at http://prospects or]. The sharper fall in exports is likely to show in a lower contribution of net exports to Q4 GDP growth. With recent releases of economic indicators in Germany pointing on the upside (business confidence, manufacturing activity, employment) prospects for a rebound in external trade activity during Q1 2012 remain favorable.  For 2011 as a whole, Germany posted a strong trade performance, with annual exports increasing by 11.4%, reaching a record high of €1.06 trillion – second only to China whose exports hit €1.4 trillion in 2011. However, Germany’s trade surplus of €158 billion in 2011 surpassed its 2010 level (€155 billion) and that of China’s €117 billion.

Among Emerging Markets

In Europe and Central Asia, Turkey’s seasonal and calendar adjusted industrial production rose 2.7% year-on-year (y/y) in December, according to TurkStat. Bulgaria’s working day adjusted industrial production contracted by 0.6% (y/y) in December while the seasonally adjusted index declined by 1.3 percent month-on-month (m/m), according to the National Statistical Institute.  
In the Middle East and North Africa, Egypt's net international reserves fell 9.7% (m/m) in January to $16.4 billion, less than half the level in January 2011.

In South Asia, Bangladesh's consumer price index (CPI) inflation rose to 11.6% (y/y) in January driven by increases in energy and fuel prices, according to the Bureau of Statistics.

In Sub-Saharan Africa, Ethiopia’s CPI inflation moderated slightly to 32.0% (y/y) in January from 35.9% (y/y) in December. Zimbabwe’s cost of living index for low-income households rose by 5.7% (m/m) during January 2012, according to Consumer Council of Zimbabwe.