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Prospects Daily: Cypriot stocks open lower, Eurozone manufacturing weakens, Russia’s growth slows

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Financial Markets… Cypriot stocks opened lower on Tuesday following a two-week hiatus in the wake of the country banking crisis, with the benchmark Cyprus General Market Index retreating 2.5%. The gauge has dropped 13% thus far this year, and it has tumbled 98% from its high reached in October 2007.

China’s yuan climbed to a highest level since December against the dollar, rising 0.15% to 6.1986, as the central bank raised its currency reference rate by 0.14% to 6.2586 per dollar. The Chinese currency is allowed to trade 1% on either side of the central parity rate each trading day.

Developing-country equities slid for a second day, with the benchmark MSCI Emerging Market Index falling 0.1% in afternoon trading, as weak corporate earnings news from China and military tensions on the Korean peninsula offset gains in Emerging Europe. South Korea’s Kospi Index fell 0.5%, while China’s Shanghai Composite Index dropped 0.3%. In contrast, benchmark stock indices in Poland, Hungary and the Czech Republic gained between 0.4% and 1.4%.

High-income Economies…The downturn in the Eurozone manufacturing sector deepened in March, with the final manufacturing PMI falling to 46.8 from 47.9 in February, a 3-month low reflecting a weak intra-Euro demand that countered rising orders from overseas. The index has now remained below the 50 mark separating growth from contraction since August 2011. Separately Euro Area unemployment held steady at a record high in February at 12%.

March PMI data show that German and Irish manufacturing are contracting once again, while rates of decline gathered pace in the remaining economies covered by the survey save France, where the index hit a 4-month high at 44. PMI employment sub-indices showed that manufacturers reduced their workforces for the 14th successive month in March, with steep rates of declines reported in France, Italy, Spain, the Netherlands, Ireland and Greece

In the UK, the final March manufacturing PMI estimate came in at 48.3, only slightly above February’s reading of 47.9 and indicating a 2nd month of contraction amid weak demand in Europe for British exports. With manufacturing accounting for a fifth of total output, the onus is on the services sector to prevent the economy from contracting in Q1 and slipping into what would be the third recession in less than five years.

Developing EconomiesEurope and Central Asia: Russia’s growth in the 2012Q4 slowed to 2.1% (y/y) from 3.0% (y/y) in the previous quarter primarily due to an easing of household consumption and a slowdown in exports. For the entire year growth came in at 3.4%, down from 4.3% in 2011.

Latin America and the Caribbean: Brazil’s industrial output contracted in February by 3.2% (y/y), down sharply from growth of 5.5% (y/y) in January. While production of capital goods rose 9.1% (y/y) in February, production of intermediate and consumer good declined by 4.4% and 5.0% (y/y) respectively.

South Asia: Pakistan's inflation continued to ease in March falling to 6.6% (y/y) in March, a six year low, down from February's 7.4% rate. Food inflation, declined to 5.9% (y/y) in March while non-food inflation also stood 0.7 percentage points lower than in the previous month at 6.7% (y/y). The government’s inflation target for the fiscal year ending June 30, 2013, is 9.5% (y/y, average).

Sub-Saharan Africa: South Africa’s manufacturing PMI dropped below 50 in March to 49.3 from 53.6 in February signaling contraction of manufacturing activity. Index fell in for the first time in three months as new sales orders declined.