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Prospects Daily: Yen continues to slide, China’s imports surge, Spain’s industrial production continues to contract

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Financial Markets…Japan’s currency continued its slide triggered by Bank of Japan’s aggressive monetary easing plans. The dollar gained as much as 0.5% versus the yen to 99.53, just shy of its strongest since May 2009, which it hit Tuesday, while the euro gained 0.7%.

The Italian Treasury auctioned €11 billion ($14.4 billion) of short-term government securities on Wednesday as investors’ search for yield intensified in Europe amid signs of continued accommodative monetary policy in G3 countries. The Treasury sold €11 billion of one-year bills at a yield of 0.922%, down from 1.28% at last month auction, and €11 billion of 3-month bills at a yield of 0.243%.

Indian shares advanced for the first time in six days, with the benchmark Sensex index bouncing back 1% from a seven-month low level, as some investors hunted bargains after a sharp sell-off. The Sensex has been slumping amid speculation India’s corporate earnings will weaken further in coming quarters on account of the sluggish pace of economic growth in a decade, prompting the sell-off of local shares by foreign investors.

High-income Economies…Industrial production data showed a strong improvement in France, but smaller gains in Italy and Spain. French industrial output rebounded strongly in February, helped by large monthly gains in transport, refining and manufacturing. Output fell by a modest 0.4% (3m/3m saar) in February compared to a 6.1% decline in January.

In Italy the moderation in the rate of decline was smaller compared to France, with output falling by 3.4% (3m/3m saar) in February after a 7.2% drop in January. On a month-on-month basis output fell 0.8% (m/m sa) after a 1.0% gain in January, led by falling consumer and investment goods output.

Spanish industrial output continued to contract in February falling by 5.1% (3m/3m saar), although this represents an improvement from the 9.6% drop in January. Overall output looks on course to contract in Q1, which would be its 11th consecutive quarter of decline. Levels are nearly a third below pre-crisis peaks in mid-2007. 

Developing EconomiesEast Asia and Pacific: China’s exports slowed in March to 10% (y/y), down from a 22% increase in February, while imports surged by 14.1% in March, up from 15% (y/y) drop in the previous month. The resulting trade balance turned to a deficit of $884 million in March, compared to a surplus of $15.23 billion in February. Part of the volatility was explained by the long Lunar New Year holiday, which shuts down most of the country for weeks and fell in February this year.

Europe and Central Asia: Ukraine’s contraction in growth accelerated in 2012Q4 to 2.5% (y/y), up from a contraction of 1.3% (y/y) in the previous quarter. Growth for the entire year came in at 0.2%, down from 5.1% in 2011 on the account of weakening external demand and slowing investments.

Latin America and the Caribbean:
Brazil’s inflation increased to 6.6% (y/y) in March, up from 6.3% (y/y) in February, breaching the central bank’s inflation target of 4.5% +/- 2%. Food prices rose less in March than they did in February but continued to be the main driver of inflation.

South Asia: Car sales in India contracted by 7% (y/y) for the year ending in March, which represents the first annual drop in car sales in a decade as high interest rates, rising fuel prices and economic slowdown affected purchases.  In 2011, India's car sales grew by 2.2%.