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Prospects Daily: Concerns over US budget woes weigh on global equities, Eurozone economic confidence rises to 25-month high, Ghana’s GDP growth rebounds in the second quarter

Financial Markets… Growing concerns over U.S. budget woes weighed on global equities on Friday, while Italy’s political turmoil and China’s growth concerns hit European and developing-country shares. The benchmark MSCI world equity index fell 0.2 percent in morning trade, but expected weakness in U.S. equities is likely to send the index further lower in afternoon session. The Stoxx Europe 600 Index dropped 0.3 percent and the MSCI Emerging Market Index lost 0.4%, trimming their monthly gains. Despite recent slump in past few days, global stock markets are set to post their best monthly rally in nearly two years, reflecting a broader optimism about the prospect of the U.S. and global economies in coming months.
 
U.S. Treasuries extended their gains today, gearing for their longest weekly gaining streak since April, as growing concerns over a U.S. government shutdown boosted demand for safe-haven government debt. The benchmark 10-year note yield fell by 2 basis points to 2.6%, extending the weekly decline to 11 bps. The yield jumped to 3.0% on September 6 amid the Fed’s expected slowdown on its stimulus program and then fell after the announcement of surprising no-tapering decision. Meanwhile, Italian bonds weakened for a second day, pushing the country’s 10-year yield higher by 7 bps to 4.4%, amid ongoing political tensions. The yield climbed 10 bps yesterday, the steepest jump since September 5.
 
High Income Economies… The U.S. Thomson Reuters/University of Michigan's final consumer sentiment index dropped from 82.1 in August to 77.5 in September, which is a five-month low.  Even though consumers have been feeling better about the economy thanks to signs of improvement in the labor market, rising home prices and the prospect of the Fed's stimulus program being extended, the sub-indexes for current economic conditions fell to 92.6 in September from 95.2 in August.  The expectations regarding inflation have also increased for the near and medium term.
 
U.S. personal income increased 0.4 % (m/m sa) in August from a 0.2% increase in July.  The increase in personal income came as private wages and salaries climbed by $28.5 billion in August, in contrast to a decrease of $10.9 billion in July.  Similarly, U.S. personal spending increased by 0.3% (m/m sa) in August after rising by 0.2 % in July.  As it accounts for about 70% of U.S. GDP, the increasing consumer spending is a healthy indicator for economic growth.
 
The Eurozone economic confidence index rose for the fifth month in a row from 95.3 in August to 96.9 in September, the highest level since August 2011.  Marked strength was observed across all business sectors, with the improvements particularly pronounced in construction (from -33.2 in August to -28.8 in September) and retail trade (from -10.6 in August to -7 in September).
 
On the downside, Markit Eurozone Retail PMI eased below neutrality to 48.6 indicating a renewed decline in retail sales in September.  The average PMI reading for Q3 (49.5) was nevertheless the best since Q2 2011.  The overall drop in retail sales mainly reflected a fresh contraction in France following two months of growth, and an ongoing decline in Italy. Also, German retail sales rose at the weakest rate in four months.  Encouragingly, the fall in Italian retail sales was the slowest in two years.
 
Developing Economies… Europe and Central Asia: Hungary’s unemployment rate fell in August to its lowest level in four years. In the three-month period ended in August, the unemployment rate decreased to 9.9% from 10.1% in July, marking the fifth month in a row that unemployment has declined.  A lower unemployment rate was recorded in July 2009 when it stood at 9.7%.
 
Turkey’s consumer confidence index fell 1.6% (m/m) to 77.2 points in August, following a 2.9% (m/m) increase in July, keeping the index well below the neutral outlook of 100 points.  Contributing to the August decline were a 2.2% fall in the general current economic situation index and a 2% decrease in the index for the general economic situation in the next 12 months.  
 
Sub-Saharan Africa: Ghana’s GDP grew 6.1% (y/y) in the second quarter of 2013, a slower pace than the 6.7% growth rate recorded in the first quarter of 2013.  Driving this expansion, the services sector increased 9.2% (y/y), on account of strong growth in financial and assurance activities (27.5%), information and communication (24.5%) and public administration (19.7%); and the industrial sector grew 2.5% (y/y) supported by growth in mining, electricity, and construction.  However, the agricultural sector contracted by 3.9% (y/y), with negative growth in cocoa production (-1.4%), livestock (-12.6%), and forestry and logging (-8.6%).  Quarter-on-quarter, GDP growth rebounded to 3.9% (q/q sa) in the second quarter from a contraction of 3.1% (q/q sa) in the first quarter.