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Prospects Daily: Moody’s downgrades Spanish regions…industrial confidence in Turkey falls for sixth month

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Financial Markets… Moody’s Investors service lowered its credit ratings for five regions in Spain, downgrading the rating for economically important but highly indebted Catalonia by two notches to ‘Ba3’ from ‘Ba1’. The rating agency said the downgrades were driven by the deterioration in their liquidity positions.

Spanish government bonds fell for a third day, with the benchmark 10-year yields rising 4 basis points to 5.53% and the 2-year yield climbing 10 bps to 2.97%, as Spain’s gross domestic product contracted for a fifth quarter and Moody’s downgraded its regions.

Developing country stocks markets declined on Tuesday, with the benchmark MSCI Emerging Market Index sliding 0.8%, the most in two weeks, as weak corporate earnings and falling commodity prices dented investor sentiment. Russian shares led the loss with the benchmark Micex Index falling 1.6%, its biggest loss in four weeks.

High-income Economies…The Bank of Canada kept its key interest rate unchanged at 1%, saying that while the Canadian economy continues to expand, housing activity is starting to decline and exports remain weak. Canada’s retail sales rose 0.3% in August from July (+2.7% y/y), pushed up by higher gasoline sales (+2.9% m/m) mainly from higher prices, and by food sales.

A business sentiment index for France fell to the lowest in more than three years in October, declining to 85 from 90 in August, as a lack of economic growth in the Euro Area countries weighed on exports and looming tax increases damped domestic demand.

Taiwan’s industrial production growth accelerated to 3.0% (y/y) in September (+2.95% m/m) from 1.4% in August mainly on the back of a recovery in exports. Taiwan’s exports surged 10.4% (y/y) in September (+10% m/m) following six consecutive months of year-on-year declines, after central banks started implementing measures to boost demand.

retail sales growth slowed to 3.1% (y/y) in September from 5.8% in August, led by a decline in sales of motor vehicles. The unemployment rate remained unchanged at 12.4% in September.

Developing Economies…The Central Bank of Sri Lanka kept its benchmark repurchase rate unchanged at 7.75%. The headline inflation rate declined to 9.1% in September, down from 9.5% in August, but price pressures remain due to administered price adjustments and an uncertain global environment.

Industrial confidence in Turkey deteriorated for the sixth consecutive month in October with the relevant index dropping to 102.4 from 103.1 in September. Turkey's capacity utilization rate rose slightly to 74.9% in October from 74% in September.

The number of foreign visitors to Turkey rose 1.7% (y/y) in September to 3.99 million people, compared to a 9.7% increase in August. The total number of foreign visitors in the first nine months of 2012 rose 0.5% (y/y) to 25.8 million people. In 2011 as a whole, tourist arrivals increased 9.9% to 31.5 million.

South Africa's composite leading business economic indicator rose for the first time after eight declines, by 0.1 % (y/y) to 131.2 in August‚ compared with a revised 131.0 in July. The largest positive contributions in August came from an acceleration in the twelve-month percentage change in the composite leading business cycle indicator of South Africa’s major trading-partner countries‚ as well as an increase in the prices of all classes of shares traded on the Joint Stock Exchange.