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Prospects Daily: ECB keeps key policy interest rate steady, Chinese export growth accelerates to double digits

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Financial Markets…The euro strengthened against the dollar and the yen, gaining 0.9% to $1.3184 and 1.3% to 116.32 yen, as the European Central Bank left interest rates on hold and said there are some signs of economic stabilization. Spain’s successful bond auction today, in which the government sold more than the maximum target amid strong investor demand, also weighed positively on the single currency.

Spanish 10-year government bond yields fell 21 basis points to 4.92% on Thursday, sliding below 5% for the first time since March, after the country raised €5.82 billion (surpassing a maximum goal of €5 billion) in its first debt auction of the year, adding to signs the region’s debt crisis is easing. Italian debt also rallied with the country’s 2-year and 10-year yields dropping 22 bps and 12 bps, respectively.

Developing-country stocks headed for the most gain in a week, with the benchmark MSCI Emerging Market Index gaining 0.4% in afternoon trading, as better-than-expected Chinese trade figures in December highlighted signs of a global demand recovery. China’s Shanghai Composite index climbed 0.4%, while South Korea’s Kospi index added 0.8%. Elsewhere, Brazil’s Bovespa index rose .03%, and Hungary’s BUX index jumped 0.7%.

High-income Economies
US initial unemployment claims rose by 4,000 to a seasonally adjusted 371,000 in the week ending January 5. The four-week moving average for new claims, a less volatile measure, increased 6,750 to 365,750, suggesting that uncertainties associated with fiscal negotiations in the US are weighing on the labor market. 

The European Central Bank held its key policy interest rate for the Euro Area at 0.75 percent, citing a significant improvement in financial market conditions and broad stabilization in some indicators, and that medium-term inflation expectations remain in line with the ECB’s target of below but close to 2%. But the bank acknowledged that the Euro Area economy remains weak and growth would pick up only later this year.

The Bank of England kept its target for quantitative easing for the UK at 375 billion pounds, and also held its key interest rate at a record low of 0.5 percent.

Industrial production in France rose 0.5% (m/m) in November, mainly due to a rebound in the production of transport equipment and energy, following a 0.6% contraction in October. France’s consumer price inflation edged down to 1.5% (y/y) in December from 1.6% in November, but consumer prices rose 0.4% (m/m). 

Developing EconomiesBrazil’s inflation of 5.84% in 2012 was near the top of the official target range of 4.5% +/-2 percentage points, but down from 6.5% in 2011, with food prices contributing to higher inflation during the second half of 2012.

China's exports grew 14.1% (y/y) in December, the fastest pace in seven months and considerably faster than 2.9% (y/y) growth recorded in November. Imports gained 6% following no change in November. The trade surplus increased to $31.6 billion in December from $19.6 billion in November. According to preliminary estimates, export growth of 7.9% in 2012 was lower than the government's full-year target of 10%. Imports gained 4.3%. The trade surplus for the year was $231.1 billion.
 
Indonesia's central bank held its benchmark reference rate steady at 5.75%.

Industrial production in Malaysia rose 7.5% (y/y) in November, faster than 6.4% recorded in October. On a monthly basis, industrial production was up 1.4% in November.

Romania's industrial production contracted 1% (y/y) in November led by a 3.65% decline in production and supply of electricity, gas, heat, steam and air conditioning and a 0.9% decline in the manufacturing sector, while production in mining and quarrying sector grew 3.7%. On a monthly basis, industrial output decreased 0.8% in November.

South Africa's manufacturing production growth accelerated to 3.4% in November from 2.7% in October led by 11.4% increase in production of petroleum, chemical, rubber and plastic products and 6.7% growth in production of motor vehicles, accessories and other transport equipment. On a monthly basis, manufacturing production increased 2.3% in November.