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Prospects Daily: ​European financial markets slump, U.K. economy expands at its fastest pace in three years, Mexico’s merchandise trade deficit narrows

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Financial Markets… The Japanese yen weakened for the first time in five days as speculations Japan’s government is still considering cutting corporate taxes and putting more funds into stocks damped the currency’s relative safe-haven attraction and sparked gains for Tokyo shares. The drop in the Japanese unit has been correlated with increasing risk appetite. The yen depreciated 0.5% against the dollar to 98.95, while Japan’s currency eased 0.3% against the euro to 133.59.
 
European financial markets slumped on Thursday as continued weakness in the region’s bank lending and Italian political concern added to ongoing worries about the U.S. government’s fiscal gridlock. Bank loans to the euro-zone’s households and companies fell by 4.7% in August from a year earlier, possibly showing signs of the currency’s bloc’s economic fragility. Deepening political turmoil in Italy in the wake of former Premier Silvio Berlusconi’s threat pushed Italy’s 10-year government bond yield higher by 10 basis points to 4.34% and hit Italian stocks for 1.7% drop. The euro fell to its weakest level versus the dollar in three weeks at $1.3492 and benchmark stock indexes in U.K., Germany and France all declined slightly in mid-day trading.
 
High Income Economies… Up from Q1’s growth of 0.4% (q/q sa), U.K. GDP grew at 0.7% (q/q sa) in Q2, which is its fastest pace in three years.  Construction and industrial output both grew at their fastest pace in three years, and the services sector expanded at 0.6% (q/q sa) unchanged from its growth rate in Q1.  Compensation of employees jumped 2.9% (q/q sa) - the fastest increase since 1989.  However, business investment plunged 2.7% (q/q sa), compared with an increase of 0.9% in Q1.  On annualized basis, GDP expanded at 2.7% (q/q saar) in Q2, compared to 1.5% for Q1.
 
U.S. GDP increased by 2.5% (q/q saar) in Q2 up from Q1’s increase of 1.1%.  The acceleration in the pace of GDP growth primarily reflected upturns in exports and non-residential fixed investment, a smaller decrease in federal government spending, and an upturn in state and local government spending.  Consumer spending increased by 1.8% (q/q saar) reflecting a slowdown from the 2.3% growth seen in Q1.
 
First-time claims for U.S. unemployment benefits unexpectedly decreased to 305,000 in the week ending September 21, 2013 from 310,000 for the previous week.  The less volatile four-week moving average for initial claims also dropped to 308,000, from the previous week's average of 315,000.  The decrease extended a recent downward trend by the four-week moving average, which fell to its lowest level since June 2007.  Meanwhile, continuing claims, a reading on the number of people receiving ongoing unemployment assistance, rose to 2.83 million in the week ended September 14th from the preceding week's revised level of 2.79 million
 
Developing Economies… East Asia and Pacific: Thailand’s exports rebounded strongly in August, increasing 3.9% (y/y) its fastest pace in 5 months; while imports fell 2.1% (y/y). For the eight-month period ending in September 2013, exports rose 1% from the same period the previous year, significantly below the government’s target of 7.0 %-7.5% gain in 2013.
 
Latin America and the Caribbean: Brazil’s unemployment rate fell in August to 5.3% (m/m, sa) from 5.6% in July for the second consecutive month, bringing the unemployment rate to its lowest level since December 2012, when it stood at 4.6%.  Year-on-year, the number of unemployed was unchanged, while employment increased by 1.2%.
 
Mexico’s merchandise exports accelerated in August. Provisional data show that exports advanced 3.2% (y/y,) in August; non-oil products dispatches rose 6.1%, while oil exports fell by 13%. Exports largely outpaced imports, which grew 0.8% (y/y). As a result, the trade deficit narrowed sharply to US$234.2 million (y/y) compared with US$982 million the previous year.    
 
Sub-Saharan Africa: The producer price index for South Africa’s manufacturing sector edged up 6.7% in August from 6.6% in July, rising for the third consecutive month. Driving this increase, intermediate goods prices accelerated to 11.1% (y/y) in August from 9.4% in July, and prices in the mining sector jumped 10.4% from 7% in July.