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Prospects Daily: Global financial markets rally, S. federal government reopens, uth Africa’s wholesale sales growth slows

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Financial Markets… Global financial markets rallied early Thursday on the back of a U.S. debt deal, but euphoria from U.S. fiscal rally gave out to concerns over the implications of the 16-day U.S. government shutdown and prospects of fiscal tension again in January.  U.S. and Asian stock markets initially greeted the U.S. debt deal to avert a historic debt default, but European shares continued to retreat with German stocks leading the decline.  The dollar weakened the most in a month against the euro, sliding 0.8% to $1.3643 in morning trade, while the greenback depreciated 0.8% versus the yen to 97.97 after climbing to 99.01, the strongest since September 1.  The weaker dollar and the likelihood of the Federal Reserve to postpone tapering its stimulus program pushed gold higher with the spot gold price surging more than 2.5% to $1,320 per ounce.

Safe-have government bonds advanced as the last-minute deal to avert a default and reopen the federal government seen as a temporary respite without the longer-term solution and prompted speculation the Federal Reserve would maintain stimulus program for the foreseeable future.  The benchmark 10-year U.S. Treasury yield slid 4 bps to 2.62% after dropping 6 bps yesterday, while German 10-year bond yield fell 4.3 bps to 1.89% after rising to 1.94% yesterday, the highest level in three weeks. Short-term rates fell as well with the one-month T-bill yield sliding 12 bps to 2 bps.

High Income Economies…The U.S. federal government reopens Thursday after Congress and President Obama agreed to fund federal agencies until January 15 and to suspend enforcement of the debt limit to February 7, 2014.

U.S. initial jobless claims fell to 358,000 in the week ended October 12th from the previous week's revised figure of 373,000.  However, the claims data continues to be distorted by a claims backlog in California that contributed to the sharp jump in the previous week.  The less volatile four-week moving average climbed to 336,500, an increase of 11,750 from the previous week's revised average of 324,750.  Meanwhile, continuing claims fell to 2.86 million in the week ended October 5th from the preceding week's revised level of 2.90 million.  70,000 federal government employees filed claims amid the government shutdown, although the claims were recorded in a separate category.

Poland's industrial production rose 6.2% (y/y) in September, faster than the 2.2% gain seen in August.  Manufacturing production advanced 6.8% (y/y) annually, mining and quarrying output rose 2.2%, and production of electricity, gas, steam and air conditioning rose 2.3%.

Developing Economies…Latin America and the Caribbean: The minutes of Brazil central bank’s latest policy meeting suggest that the Monetary Policy Committee remains cautious on inflation.  The minutes show that the committee believes that it is appropriate to continue to the current pace of adjustments in monetary policy.  On October 9, 2013, the central bank raised a key benchmark rate, the Selic rate, by 50 basis points to 9.50 percent, the fifth consecutive increase in a row, to help bring down inflation.
Sub-Saharan Africa:  South Africa’s wholesale sales increased for the fifth consecutive month in August but at a slower pace, rising 5.3% (y/y) compared with 9.1% in July and 6.4% in June.  The slower growth pace was also seen in the monthly data, with sales recording a seasonally adjusted growth of 0.4% (m/m, sa) in August compared to a 0.9% (m/m, sa) increase in July. For the three-month period ending in August, wholesale sales rose 1.8% from the preceding three-month period.
Nigeria’s annual headline inflation, measured by the consumer price index, eased in September, falling slightly to 8.0% (y/y) from 8.2% in August due to lower food prices, which fell for the second consecutive month in September to 9.4% (y/y) from 9.7% in August as production from the ongoing harvest continues to push prices down.  Month-on-month, food prices rose 0.9% in September from 0.5% in August, driven by high costs of oils and fats and bread and cereal.  The core CPI index, which excludes prices of volatile agricultural products, increased for the third consecutive month to 7.4% (y/y) in September from 7.2% (y/y) in August.