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Prospects Daily: ​Developing-country stocks advance, Canada’s manufacturing PMI at 15-month high, China’s purchasing manager’s index rises marginally

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Financial Markets… Developing-country stocks advanced for the first time in six days as robust manufacturing data from Emerging Europe, especially Turkey and Russia, off-set concern about a shutdown of the U.S. government. The benchmark MSCI Emerging Market Index rose 0.6% after a 5-day decline, which pushed its valuations to a 3-month low. The gauge surged 5% in the third quarter, its largest quarterly gain this year, helped by the Fed’s surprise restrain from tapering its stimulus program.
 
Government bonds in Spain and Portugal continued to advance on Tuesday amid speculation a partial U.S. government shutdown will further delay the timing of the Fed’s decision to pare stimulus. The 10-year Spanish bond yield dropped as much as 10 basis points to a 4-month low of 4.20%, while Portuguese equivalent fell 9 bps to 6.59% after sliding to 6.51%. Italian bond also advanced even amid growing political uncertainty with the yield on 10-year note dropping 5 bps to 4.52%.
 
Money market rates fell, with the average interbank rate for three months sliding to a 27-month low, as banks flush with abundant liquidity seemed to search for a safe investment place. The U.S. dollar 3-monthLondon interbank offered rate (LIOBOR) fell to 0.24585% today, the lowest level since early 2011. As the risk-free rates have declined sharply in past years, investing for short-term bank rates have become relatively safe and attractive for banks.
 
High Income Economies…Business sentiment within the U.S. manufacturing sector, as measured by the Institute for Supply Management (ISM) purchasing managers index (PMI), increased from 55.7 in August to 56.2 in September, making the latest reading the highest level since April 2011.  Driving the improvement were increases in production, backlogs and employment, while new orders and exports slid.
 
Similarly, business sentiment within the Canadian manufacturing sector, measured by the Royal Bank of Canada (RBC) PMI, rose from 52.1 in August to 54.2 in September, a 15-month high.  Factors leading to the increase include accelerations in output and new order growth.  New export orders also saw the greatest increase in 30 months, while job creation rose to a 15-month high.
 
Business confidence also improved within the manufacturing sector of Taiwan, China.  The Taiwanese PMI improved two points to 52.0 in September, an 18-month high thanks to strong demand from mainland China, Europe and the U.S.
 
The Markit Eurozone manufacturing PMI edged down to 51.1 in September from August’s 26-month high of 51.4.  Levels of production and new orders both rose for the third consecutive month and growth of new export business was reported by all nations except Greece.  The Netherlands led the individual country PMIs with 55.8, a 29-month high.  Ireland follows next with a PMI of 52.7, a 14-month high.  Expansions were also seen in Germany (51.1), Austria (51.1), Italy (50.8) and Spain (50.7).  
 
Meanwhile, the unemployment rate in the Eurozone in August was unchanged from July at 12.0.  The trend is down from May and June figures of 12.1%, but still well above April's 11.5%.
 
In contrast, Japan’s unemployment rate jumped to 4.1% in August from 3.8% in July, as the number of unemployed people grew by 210,000.  This is the largest rise in unemployment since July 2009, but 70,000 of these people were new entrants into the workforce, suggesting that some people have returned to the labor market as the economy has picked up.
 
Developing Economies… East Asia and Pacific: China’s official purchasing manager’s index increased marginally to 51.1 in September from 51 in August as new orders, production and other sub-indexes posted modest growth. The new orders index edged up to 52.8 in September from 52.4 in August; the new export orders index rose to 50.7 from 50.2 in August; and the production index increased to 52.9 from 52.6. However, the employment index fell to 49.1 from 49.3 in August. In comparison China HSBC PMI, which is based on a smaller sample, came in at 50.2, lower than the consensus expectations and flash PMI reading of 51.2.  
 
Latin America and the Caribbean: Brazil’s trade surplus decreased in August to US$1.2bn from US$3.2bn a year earlier as exports slowed, with a 4.3% (y/y) decrease in shipments; while imports increased by 5.4% (y/y).  Driven by shipments of airplanes, soybean, cellulose, corn, orange juice and beef, shipments to the US increased 12.6% (y/y). In the eight-month period ending in August Brazil accumulated a trade deficit of US$3.7bn compared with a surplus of US$13.2bn during the same period in 2012.
 
South Asia: The HSBC India Manufacturing Purchasing Managers’ Index for September came in at 49.6, up from 48.5 in August, but remained below the neutral 50-mark for the second consecutive month. This PMI reading reflected a decline in new orders placed with Indian goods producers, a contraction in export orders and a decrease in employment.
 
Sub-Saharan Africa: Angola’s central bank decided on September 30th to leave its key benchmark rate unchanged at 9.75 percent, which it had cut by 25 basis points in August. Low inflation, which eased to 0.54% (y/y) in August from 0.6% a year ago, and a stable exchange weighed on the central bank’s decision.
 
South Africa’s purchasing manager’s index declined by 7.4 points to 49.1 in September, moving into contraction territory for the first time in 5 months. The business activity index fell to 46.7 in September from 59.2 in August; the new sales order index lost 9.4 points; and the employment index fell 1.7 points to 49.5 in September. Quarter-on-quarter, the September PMI reading was more optimistic, with the index measured at 52.6 up from 51.7 in the second quarter and 49.8 in the first quarter.