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Prospects Daily: Philippine stocks fall further, Spain unemployment falls, Russia inflation increases

Global Macroeconomics Team's picture
Financial Markets…The dollar bounced back from a 4-week low versus the yen as weak US economic data eased concerns about earlier-than-expected ending of the Federal Reserve’s stimulus program. News that Japan would appeal public pension funds to raise investments in stocks and overseas assets also hurt Japans’ currency. The dollar appreciated 0.5% to 100.10 yen after sliding to 98.86 yesterday, the lowest level since May 9, while the greenback gained 0.1% to $1.3086 euro.

Turkish government bonds, currency, and stocks recovered from yesterday’s market sell-off amid expectation that nationwide protests would calm down. The yield on Turkish 2-year bond tumbled 67 basis points to 6.11%, the steepest decline on record, following yesterday’s 71 bps surge. The lira gained 0.4% to 1.8745 per dollar, bouncing back from a 17-momth low, while the country’s benchmark stock index climbed 4%, after a 10% drop that the was the largest one-day loss in a decade yesterday.

Philippines stocks fell the most among Asian stocks, with the benchmark PSE index sliding 1.3% to extend its decline from a May record high to 9.7%, as foreign investors cut their holdings amid high valuation concerns. A rally in May pushed the country’s stock valuations to 19 times over estimated 1-year profit, making them the world’s most expensive equities.

High-income Economies…The Reserve Bank of Australia kept its policy rate on hold, citing concerns regarding the currency’s strength despite a sharp depreciation since the last month’s policy meeting when it had cut rates to a record low of 2.75%.

France announced cuts in family tax benefits to reduce its fiscal deficit which amounted to 4.7% of GDP in 2012 (€98 billion), among the highest in the Euro Area. Measures include a reduction in the income tax exemptions that wealthy households can claim according to the number of children they have. It is estimated to affect 1.2m households -- 12% of households with children -- and to reduce the fiscal deficit by €1.1bn in 2014 and up to €1.7bn in 2016. There is broad political support for the system, credited with producing one of the highest birth rates in Europe.

In Spain, the number of people registered as unemployed fell by a little under 100,000 in May to 4.98 million, as employers ramped up hiring in preparation for the busy summer tourist season. The recession of the past few years has hit workers hard, with the unemployment rate rising to a record 27.2% during in Q1.

Developing EconomiesEurope and Central Asia: Russia’s inflation increased second month in a row to 7.4% (y/y) in May, up from 7.2% in April and 7% in March. Higher food costs are adding to price pressures as inflation remains more than a percentage point above the top end of the central bank’s 5-6% target.

Latin America and the Caribbean: Brazil’s trade surplus dropped 74.3% (y/y) in May to reach $760mn with exports of $21.8bn (down 1.5% y/y) and imports of $21.1bn (up 9.0% y/y). For the first five months, the trade deficit reached nearly $5.4bn dollars--the worst result on a record starting in 1959--and down from a surplus of nearly $6.3bn in the same period year ago.