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Prospects Daily: Developing-country stocks advances, U.S. existing home sales declines, China builds up foreign exchange reserves

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Financial Markets…Global exchange-traded funds that track everything from equities and bonds to commodities received about $47 billion inflows since September 1 with nearly $7 billion going into ETFs on October 17 alone amid resolution of the U.S. budget impasse.  EFTs registered about $18 billion outflows in August, after posting $40 billion inflows in July and $11 billion outflows in June, making it the most volatile period on record for money flows. Month-to-month fluctuations in ETF flows totaled more than $53 billion since June, about the six times higher than 13-year average.

Most developing-country stocks advanced on Monday, following a three-week gain, as Chinese and Turkish shares rallied. More than 470 stocks in the benchmark MSCI Emerging Market Index rose and 293 shares declined. China’s Shanghai Composite Index gained 1.6%, the biggest gain since October 1, and Turkey’s Borsa Istanbul National 100 Index climbed for a fourth day to a one-month high. In contrast, Thailand’s benchmark SET index fell 2.4% on political turmoil, the steepest drop in a month.

High Income Economies…U.S. existing home sales declined 1.9 (m/m sa) in September to an annual rate of 5.29m from a flat reading in August.  On a three-monthly annualized basis, existing home sales actually increased 25.9% (3m/3m saar) in September, up from 22.7% in August.

The government deficit of both the euro area (EA17) and the EU28 decreased in in 2012 compared with 2011, while the government debt rose in both zones.  Te government deficit to GDP ratio in the euro area decreased from 4.2% in 2011 to 3.7% in 2012 and in the EU28 from 4.4% to 3.9%.  In the euro area, the government debt to GDP ratio increased from 87.3% at the end of 2011 to 90.6% at the end of 2012 and in the EU28 from 82.3% to 85.1%.  In 2012 the lowest government deficits in percentage of GDP were recorded in Estonia and Sweden (both -0.2%), Luxembourg (-0.6%) and Bulgaria (-0.8%), while Germany (+0.1%) registered a government surplus.  17 Member States had deficits higher than 3% of GDP, with the largest registered in Spain (-10.6%), Greece (-9.0%), Ireland (-8.2%), Portugal and Cyprus (both -6.4%).

Export orders of Taiwan, China increased 2.0% (y/y) in September, following August's and July’s 0.5% rise.  This was the third consecutive increase in orders.   Export orders -- orders filed to manufacturers one or two months ahead of delivery -- are a key indicator for the island's export-reliant economy.  Demand for information and communications products surged 23.3% (y/y) in September.  Meanwhile, there was a sharp 32% fall in orders for transport equipment and 18.5% drop in prepared foodstuffs and tobacco products.

Developing Economies… East Asia and Pacific: China’s central bank and other financial institutions made net foreign exchange purchases totaling 126.4bn yuan (US$20.6bn) in September, up from 27.32bn yuan in August.  Following this second consecutive month of foreign currency inflows, China’s foreign exchange reserves stood at US$3.66 trillion at the end of September. 
 
Latin America and the Caribbean: Mexico’s unemployment rate rose for the fourth consecutive month to 5.29% in September, up from 5.17% in August and 5.01% the previous year.  Most of the employed people (48%) were in the service sector, followed by commerce (19%), manufacturing (16.3%), agriculture (13.5%) and construction (7.2%).
 
Chile’s central bank cut its benchmark rate, the monetary policy interest rate, by 25 basis points to 4.75% to help stimulate economic growth, citing decelerating domestic demand and depressed global economic outlook