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Prospects Daily: Turkish financial markets tumble, US home builders’ confidence rises, Sri Lankan growth eases

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Financial Markets…World shares bounced back from last week’s large losses on Monday, with benchmark indexes in Asia, Europe, and U.S. all gaining more than 1%, amid expectation that the Federal Reserve will provide some clarity on its stimulus plans after concluding its two-day meeting on Wednesday. Uncertainty over the direction of Fed’s monetary policy has prompted a sell-off in global financial markets since late May.

The yen weakened against the dollar for the first time in five trading days today as global equities bounded back amid increased demand for high-yielding assets. Japan’s currency depreciated 0.6% to 94.90 per dollar in morning trade, after strengthening 3.3% last week, the most since July 2009. The yen declined 0.8% to 126.60 per euro after rising 2.7% last week.

Turkish financial markets tumbled on Monday as the government stepped up its crackdown on protesters. Yields on the benchmark 2-year bonds increased 24 basis points to 6.45%, climbing for the first time in four days, while the country’s stocks fell 1.6%, its largest drop in almost a week. Turkey’s lira also weakened for the first time in a week, depreciating 0.7% versus the dollar to 1.8713.

High-income EconomiesEuro Area export value growth picked up to an annualized 9.5% pace in the three months ending in April (3m/3m saar), from 8.1% in the first quarter. However, imports contracted at a faster 5.6% annualized pace compared with a 2.6% contraction in Q1, reflecting subdued demand conditions.
The goods trade surplus for the Euro Area was 14.9 billion euros in April, significantly higher than the 3.3 billion euro surplus recorded in April 2012. 

Nominal hourly labor costs in the Euro Area rose at a faster 1.6% (y/y) pace in the first quarter of 2013 compared with a 1.3% increase in Q4 2012. This was led by a 3.9% (y/y) increase in labor costs in Germany in Q1.

Confidence among home builders in the US rose to a 7-year high in June, with the National Association of Home Builders (NAHB)/Wells Fargo index of builder sentiment rising 8 points to 52 (the highest since March 2006), reflecting gains in sales as Americans rushed to take advantage of low mortgage rates.

Producer price inflation in the Czech Republic slowed to 0.3% (y/y) in May from 0.5% in April, as the effect of a drop in prices of refined petroleum products offset gains in electricity and food prices.

Developing EconomiesEast Asia and Pacific: China's overnight funding rate fell to its lowest level in two weeks on Monday, as a severe liquidity strain afflicting the money market eased. One-day bond repurchase rate dropped to 4.73% on Monday morning, down from 7.03% on Friday. However, longer-term rates remained at historically high levels due a sharp decline in foreign capital inflows. The benchmark seven-day repo rate barely budged to 6.85%, compared to 6.90% on Friday.

South Asia: Sri Lanka's GDP grew 6% (y/y) in 2013Q1, down from 6.3% (y/y) in the previous quarter and down from 8% (y/y) in 2012Q1. Growing public investment compensated for sluggish private sector expansion at a time when borrowing costs are high.

India’s central bank left its main reference rate unchanged at 7.25%. Separately, exports dropped 1.1% (y/y) to $25bn in May while imports increased 7% (y/y) to $45bn resulting in a trade deficit of $20bn, which was wider than the $17bn shortfall seen in May 2012.