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Prospects Daily: Developing-country equities, bonds and currencies improve, Eurozone housing correction continues, Brazil raises interest rates

Global Macroeconomics Team's picture
Financial MarketsItalian and Spanish government bonds fell on Thursday, with the benchmark 10-year yields climbing 7 basis points to 4.52% and 8 bps to 4.89% respectively, amid speculation that both countries are likely to struggle to find eager investors for their new debt auctions this year as the economic outlook for the nations deteriorates. The rate on similar-maturity Portuguese bonds also increased 12 bps to 6.89%.

Developing-country stocks gained the most in nearly 10 months, currencies strengthened and borrowing costs declined amid expectations of more monetary stimulus from the U.S. Federal Reserve. The benchmark MSCI Emerging Market Index climbed 2.6% in its third day of gains, gearing for the biggest advanced since September 14.

Indonesia sold $1 billion of 10-year U.S. dollar-denominated bond at the highest borrowing costs since 2010 as the bond market remain uncertain about developing-country bonds following the global bond sell-off in June. The new issue was priced to yield 5.45%, which was the steepest rate for a 10-year global bond from the nation since it paid 6% in January 2010.

High-income EconomiesUS jobless claims rose in the week ended July 6th by 16,000 to 360,000, their highest level in nearly 2 months, but the increase likely reflects the impact of the July 4th holiday and scheduled auto plant shutdowns.
The 4-week average, a less volatile series, rose by 6,000 to 351,750. The 4-week moving average of continuing claims dipped by 3,500 to 2,970,750.

The decline in house prices in the Eurozone accelerated in Q1, with prices falling by 1% (q/q), double the 0.5% fall in Q4 last year. The steepest quarterly drop was in Spain where prices fell by 5.1%, followed by Cyprus (by 4.8%), then Portugal (by 3.2%) and the Netherlands (by 2.9%).

Separately, Greece became the latest southern European country to offer a renewable five-year resident visa to investors willing to spend at least €250,000 ($328,000) on residential real estate. The other countries with similar programs are Portugal and Cyprus, while Hungary and the UK offer visas in exchange for investment in government bonds above a certain threshold.

Australia’s unemployment rate rose to its highest level since 2009 to a seasonally adjusted 5.7% in June, up from 5.6% in May amid a marked increase in the number of people looking for full-time jobs. The number of unemployed persons increased by 23,700 in June to 709,300 indicating rising slack in the economy.

Developing EconomiesLatin America and the Caribbean: Venezuela’s inflation continued to accelerate in June at 4.7% (m/m), or 39.6% (y/y), up from 20.1% (y/y) in December. Underlying inflationary pressures are likely even higher than the headline number, given the presence of significant repressed inflation as roughly half of the prices in the CPI are government-controlled.

Brazil’s central bank raised the benchmark interest rate by 50 basis points to 8.5% for a third consecutive time and indicated that increases may be extended through year-end as it battles inflation. Brazil’s consumer prices rose by 6.7% (y/y) in June, the fastest pace since October 2011, and above the central bank’s inflation target’s upper range of 6.5%.

Sub-Saharan Africa: South Africa’s manufacturing output growth slowed to 2.2% (y/y) in May, down from a revised 7.1% (y/y) growth in April. On month-on-month basis, output contracted 1.7% in May. Slowing export demand plus a slowing domestic demand drove the slowdown.