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Prospects Daily: ​Continuing US government shutdown pushes global equities further lower, Eurozone producer prices remain flat, India’s purchasing managers’ index for the service sector weakens further

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Financial Markets… The continued U.S. government shutdown and growing worries over impeding debt deadline for the world’s biggest economy pushed global equities further lower on Friday. The benchmark MSCI world equity index is gearing for a second consecutive week of losses after posting considerable gains in recent rally. Meanwhile, developing-country is heading for a weekly gain, with the MSCI Emerging Market Index advancing 0.2% to extend this week’s gain to 0.7%.
 
Asian currencies rallied this week, led by Indian rupee, as investors speculated the ongoing U.S. political impasse makes the possibility of the Fed’s tapering this year very unlikely. India’s currency appreciated 1.9% versus the dollar this week, rallying more than 10% since reaching record lows at the end of August amid the anticipated Fed’s tightening on its stimulus program. The Malaysia’s ringgit gained 1.5%, while the Philippine peso advanced 0.7%. Elsewhere, South Africa’s rand and Turkish lira led the rally in Emerging Europe and Africa.
 
High Income Economies…Eurozone industrial producer prices remained flat in August, following a 0.2% (m/m nsa) rise in July.  Prices in the energy sector gained 0.2%, non-durable consumer goods by 0.2%, capital goods and durable consumer goods were flat, and intermediate goods fell by 0.1%.  For the EU28, producer prices rose 0.1% (m/m nsa) in August, following a 0.4% increase in July.  Among member states, the highest increases were in Estonia (+1.7%), Denmark (+1.1%), Ireland (+1.0%), Hungary and Finland (both +0.6%), and the largest decreases were in Belgium (-1.4%), Romania (-0.6%), Lithuania and Poland (both -0.2%).
 
Business sentiment in Hong Kong SAR, China, as measured by the HSBC Hong Kong Purchasing Managers’ Index (PMI), was exactly at the 50.0 no-change mark in September, indicating that business conditions were unchanged from August, which had a recording of 49.7.  Output and new orders both increased marginally over the month, while employment continued to decline.  Meanwhile, price pressures picked up, with input costs and output charges rising at the fastest rates in four and eight months respectively.
 
The German construction sector business sentiment improved for the fifth straight month in September, but at a notably slower pace from August’s 17-month high.  According to the Markit Germany Construction PMI dropped to 52.1 in September from the 55.1 seen in August.  Driving the slowdown, new orders received by German construction firms decreased for the 18 successive month in September, and firms also raised their workforces at a slower pace during the month.
 
Developing Economies… East Asia and Pacific: Malaysia’s exports accelerated in August, rising 12.4% (y/y), boosted by increased shipments of refined petroleum products.  Imports also grew rapidly, at 14.15 (y/y), driven by a 3.1% (y/y) increase in intermediate goods imports and a 3.2% (y/y) rise in capital goods imports. The trade balance recorded a surplus of MYR7.11bn, higher than the consensus forecast of MYR5.1bn.
 
Philippines’ annual headline inflation, measured by the consumer price index, rose 2.7% (y/y) in September, up from 2.1%(y/y) in August due to rising food prices and costs of utilities. At its current level, headline inflation remains below the central bank’s target of 4% plus/minus 1.0 percentage point.
 
South Asia: India’s purchasing managers’ index for the service sector decreased further to 44.6 (sa) in September from 47.6 (sa) in August. This downturn was driven by new business placed with service providers, which fell for the third consecutive month, and for the first time all six service sub-sectors recorded declines. As a result of the reduction in new business, companies have cut their workforce for the first time in more than a year. The HSBC India composite output index, which measures the performance of both the manufacturing and service sectors, declined to 46.1 in September from 47.6 in August, its lowest score in four-and-half years.