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Prospects Daily: Spanish and Italian bonds advance…Investor confidence in Germany rises strongly..

Financial Markets…Spanish and Italian government bonds bounced back from their earlier losses, with their benchmark 10-year yields dropping 6 basis points to 5.17% and 4 bps to 4.36%, as a report showed German investor confidence surged to the highest level in nearly three years this month, boosting risk-appetite for the region’s high-yielding debt. Notably, Spain sold €4 billion ($5.35 billion) of 3- and 9-month bills with an average yield of 0.421%, down from 0.441% in January auction.

Asian equities advanced on Tuesday, with the benchmark MSCI Asia Pacific Index heading for an 18-month high closing, amid robust corporate-earnings reports. But gains were somewhat limited on worries that Chinese government will try to cool the property market, pushing China’s Shanghai Composite Index lower by 1.6%.
 
The Standard &Poor’s cut its sovereign credit rating on Tunisia by one level ‘BB-‘ (three notches below investment grade) from 'BB', citing increased political risk in the wake of the February 6 assassination of a prominent leftist opposition politician, Chokri Belaid. The downgrade was the third one by the rating agency since January 2011.

High-income Economies…Investor confidence in Germany rose to a three year high in February, with the ZEW Indicator of Economic Sentiment, jumping to 48.2 in February from 31.5 in January. This was the third consecutive increase for the index which aims to predict economic developments six months in advance, and the highest reading since April 2010. Economic expectations for the euro area climbed 11.2 to 42.4 in February.

Greece’s current account deficit narrowed sharply to €0.54 billion in December from € 0.85 billion in November helped by falling imports and lower interest payments after a sovereign debt cut. For the year as whole, the deficit shrank to 2.9% of GDP in 2012 from 9.9% the previous year - its lowest level since 1999 when it joined the euro.

Construction output in the Euro Area continued to fall in December, declining by 4.8% (y/y) compared to 4.7% in November, led by weakness in Portugal, Poland, Bulgaria and the UK. On a monthly basis, output decreased 1.7% (m/m) in December, after dropping 0.4% in the previous month.

Developing EconomiesEast Asia and Pacific: Thailand’s GDP grew briskly by 3.6% (q/q) in Q4 of 2012, up from 1.5% (q/q) in the previous quarter. Growth for the full year came in at 6.4% up from 0.1% in 2011, reflecting strong domestic demand following the government’s stimulus post 2011 floods.

Europe and Central Asia: Russia’s retail sales slowed in January, growing by 3.5% (y/y) compared to 5.5% (y/y) in December. This is the slowest pace in 35 months as private consumption is weakening.

Latin America and the Caribbean: Mexico’s GDP growth accelerated in the Q4 growing by 3.1% (q/q, saar) up from 1.4 (q/q, saar) in Q3. Growth for the entire year was flat at 3.9% in 2012 as strong domestic demand offset weaker exports.

Middle East and North Africa: Tunisia’s industrial production accelerated in November 4.2% (y/y) compared to 0.3% (y/y) in October 2012. Higher growth partly reflects base year effects, with the expansion led by growth in energy production and manufacturing.

Sub-Saharan Africa: Nigeria’s inflation dropped to 9% (y/y) in January from 12% in (y/y) in December 2012 bringing inflation in line with the central bank’s target (<10%).