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Prospects Daily: UK GDP expands in third quarter…Philippines’ central bank cuts key policy rate

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Financial Markets…U.S. and German government bonds declined, pushing the US benchmark 10- year yield as much as 6 basis points to 1.85%, the highest since Sep.17, while comparable German yield climbed as high as 11 bps to a five-week high of 1.66% earlier, as improving market sentiment damped demand for the world’s safest assets.

Credit-default swaps (CDS) for U.S. corporates declined for the first time in six days on Thursday, with the Markit CDX North America Investment Grade Index sliding 1 basis point to 97.7 bps amid a rebound in U.S. durable goods orders and an improvement in jobless claims. CDS spreads for European companies also rallied.

Crude oil prices bounced back after dropping for five days, with West Texas Intermediate for December settlement climbed as much as $1.02 to $86.75 a barrel in New York trading, after reaching $85.73 yesterday, the lowest since July 10. Brent for December delivery also rose 91 cents to $108.76 a barrel in London trading.

High-income Economies…After contracting for three consecutive quarters, UK’s GDP rebounded by 1.0% (q/q) in the third quarter of 2012, ending Britain’s “double dip” recession, helped by an upturn in services activity, including Olympic Games ticket sales, and a rise in industrial output. GDP was flat on a year-on-year basis in the third quarter, after contracting 0.5% in Q2.

US initial unemployment claims fell by 23,000 to 369,000 in the week ending October 20, as seasonal volatility at the start of the quarter wound down, but the four-week moving average rose by a modest 1,500 to a 368,000. US durable goods orders rose 9.9% (m/m) in September, following a 13.1% decline in August, while so-called “core” orders which exclude transportation rose 2% (m/m), reversing August’s 2.1% fall.  

Italy’s retail sales were flat for the second month in August, while year-on-year sales fell 1% following a 3.2% decline in July, reflecting weak domestic demand.  

Hungary’s retail sales declined at a slower pace of 2.4% (y/y) in August compared with a 2.6% drop in July, helped by a 0.2% monthly increase in sales.

Singapore’s
industrial output fell at a faster pace of 2.5% (y/y) in September (-1.8% m/m) compared with a 2.3% fall in August, led by a 12.2% (y/y decline in electronics output and a 8.9% decline in pharmaceuticals production, reflecting still anemic global demand.

Developing Economies…The central bank of Botswana held its benchmark bank rate unchanged at 9.5%. In September, the headline inflation rate rose to 7.1% (y/y) from 6.6% in August due to higher fuel prices, remaining above the medium-term inflation target range of 3-6%.

Brazil’s unemployment rate fell to 5.4% in September (a record low for the month) from 6% a year earlier, as employment was buoyed by a series of government stimulus measures to spur expansion, including eliminating payroll taxes and other incentives to companies that pledge to avoid firing workers.

The central bank of Georgia kept its refinancing unchanged at 5.75% stating that it is expecting inflation to meet the bank's 6% rate in the medium term.

Mexico
posted its biggest trade surplus in six months in September ($437mn), as a slump in imports (-1.44% m/m) outweighed broadly flat exports (-0.05% m/m). Manufacturing exports, however, fell by a larger 0.33% (m/m), dragged down by a 0.8% fall in automotive exports, a mainstay of Mexico's recent export performance.

The central bank of Namibia kept its repurchase rate unchanged at 5.5% to support economic activity at a time of weak global growth, but signaled concern over rising household debt. The inflation rate rose to 6.7% (y/y) in September from 5.8% in August on higher food and energy prices.

The Philippines’ central bank cut overnight rates by 25 bps to a new low of 3.5% for the borrowing window and 5.5% for the lending facility, as the headline inflation was at the midpoint of the country’s 3 to 5% target band.