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Prospects Daily: US treasuries advance on Fed Chairman’s statements…South African retail spending rises

Global Macroeconomics Team's picture
Financial MarketsU.S. Treasuries advanced for a for third day on Wednesday, with the benchmark 10-year yield sliding as much as 7 basis points to a two-week low of 2.46%, after Federal Reserve Chairman Ben Bernanke said in congressional testimony the timing of an eventual tapering off of quantitative easing is not on a “preset course.” Weak U.S. housing starts data in June, which fell to the lowest level in nearly a year, also weighted positively on U.S. government debt.

Portuguese borrowing costs jumped to the highest level since October at a new 12-month debt auction of €1.2 billion today. The new securities were priced to yield 1.72%, compares with 1.232% at a previous sale of 12-month bills in May, and is the highest since the country sold comparable securities at a yield of 2.1% in October. Today’s auction was the first one since the onset of political unrest in the wake of the resignation of the nation’s Finance Minister and the subsequent resignation of the foreign minister.

Developing-country stocks advanced for a seventh day after the U.S central bank reassured markets its stimulus program could be moderated earlier than expected or expanded as economic conditions merit. The benchmark MSCI Emerging Market Index rose 0.7% in the longest streak of gains in six months with all BRIC countries posting gains except China. The benchmark indexes in Brazil, India, and Russia advanced 1.1%, 1.2%, and 0.5%, respectively. In contrast, China’s Shanghai Composite Index slid 1% at the closing, retreating for the first time in three days.

High Income Economies...The US Federal Reserve Chairman repeated intentions to slow asset purchases from their current pace of $85 billion a month later this year if the economy remains strong, but emphasized that tightening of interest rates was still some time away due to still weak labor markets and with inflation below the Fed’s 2% target.

Separately, US housing starts unexpectedly tumbled 9.9% (m/m sa) to an annual rate of 836,000 in June, the lowest in 10 months, from the revised May estimate of 928,000, mostly led by a sharp drop in typically volatile multi-family housing starts sub-component. Building permits, an indicator of future housing demand,  fell 7.5% (m/m sa) to an annual rate of 911,000 in June from the revised May rate of 985,000.

Singapore’s exports in June extended the longest run of declines since the global financial crisis. Non-oil domestic exports slid 8.8% (y/y), falling for a fifth month, while electronics  shipments dropped 12.4% in June from a year earlier, extending the slump to an 11th month, on weak demand from advanced economies and China.

Developing Economies…Europe and Central Asia: Moldova’s industrial production growth slowed in May to 4.2% (y/y) in May, after a 23.5% (y/y) jump in April. Production increased for the fourth month in a row. Manufacturing and electricity output strengthened 4.4% and 4.3% (y/y) respectively, while output declined 3.5% (y/y) in the mining sector.

Middle East and North Africa: Iran’s consumer price inflation surged at an annual rate of 41.7% (y/y) in May, just off of its high for the year of 42.2% (y/y) in April. Consumer prices leapt 2.0% higher on a monthly basis in May, following a 3.0% spike in April. Food prices remained the main source of price pressures in the economy, surging 51.4% year-on-year (y/y) in May.

Sub-Saharan Africa: South Africa’s retail sales accelerated to 6.2% (y/y) in May, up from revised 2% (y/y) growth in April. The faster growth was driven mainly by a 12.9% (y/y) rise in sales at retailers of textiles, clothing, footwear, which marked the biggest gain during the month. There was a 5.9% (y/y) growth in sales at general dealers, and a 5.6% (y/y) increase in sales in hardware stores.