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Prospects Daily: S&P closes above 2007 high…US Consumer spending is up…Thailand’s industrial production slows

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Financial Markets…After hovering around near record levels reached in 2007 for more than 2 weeks, the S&P closed at a fresh historic high on Thursday, posting a fifth straight month of gains to extend a four-year rally, amid strong investor appetite. The S&P gained 10% in the first quarter of 2013, and the Dow and the Nasdaq climbed 11.3% and 8.2%, respectively, in the quarter.

Chinese’s yuan jumped to a record high level versus the dollar on Friday, touching 6.2086 in earlier trading, as the People’s Bank of China increased the currency reference rate to a near 11 month high. The central bank set the daily dollar/yuan fixing rate at 6.2689 per dollar, the strongest level since May 2012. The Chinese currency is allowed to trade as much as 1% either side of the daily fixing.

Argentina, which defaulted a record $100 billion in debt in 2011, faces a Friday deadline to submit a proposed payment formula to resolve litigation with it bondholders who did not entered debt swaps in 2005 and 2010. Argentina’s government has to respond to a U.S. appeal court by providing a formula and timetable to pay $1.33 billion claims (in principal and interest) by holdout creditors this week. If the court rejects the proposal, investors are worried that Argentina could default on its entire restructured debt.

High-income Economies…US consumer spending increased by 0.7% (m/m) in February and rising 3.4% (3m/3m saar) in the three months ending February. Personal disposable income increased by 1.1% (m/m) in February after tumbling by 4.0% (m/m) in January. The sharp drop in disposable personal income in January reflected the expiration of the payroll tax holiday as well as the acceleration of bonus and dividends payments in December in anticipation of higher taxes.

Japanese industrial production fell in February, down 0.1% (m/m) compared to 0.34% (m/m) in January. However, IP is up 9.3% (3m/3m saar) in three month ending February indicating that the recovery is firming up in Q12013 compared to the poor performance in Q42012.

South Korea’s industrial production fell in February by 0.8% (m/m) compared to the decline of 1.2% (m/m) in January. Production fell 9.3 percent from a year earlier, a decline partly attributable to February having fewer working days this year because of the Lunar New Year holiday.

Developing Economies…East Asia and Pacific: Thailand’s industrial production slowed to 1.2% (y/y) in February, down from a revised 8.9% in January. While this marks a sharp slowdown from an average of 52.2% rate in Q42012, the deceleration had been fully anticipated given that Q42011 flood-related base effects are now largely exhausted.

Europe and Central Asia: Serbia’s GDP contracted 2% (y/y) in 2012Q4, a slight improvement over a contraction of 2.1% (y/y) in 2012Q3. For the entire year, Serbia's economy shrank 1.7% hit by a drought that slashed its agricultural exports and by the debt crisis in the euro zone, its main trade partner.

Middle East and North Africa: Moody’s downgraded government bond rating by one notch to Caa1 from B3, with a negative outlook, citing increasingly acute political, economic, and security strains. This reduces the Egyptian rating from the category of "speculative grade" into "possible default".