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Prospects Daily: Yen at three-week high, European Commission: EU Growth to Gather Speed, South Africa’s Purchasing Managers’ Index rises

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Financial Markets… Global stock markets edged slightly lower on Tuesday, with the MSCI’s benchmark world stock index easing just 0.1%, as uncertainty over the next policy moves by the European Central Bank and the Federal Reserve damped market sentiment.  Asian markets were mixed, having swung between gains and losses, while Europe’s Stoxx 600 index dropped 0.4% from yesterday’s 5-year high in afternoon trading. Developing-country’s benchmark MSCI index fell 0.6%, led by sharp declines in Indian and South African shares.  Furthermore, U.S. equities opened lower as well with the S&P 500 index falling 0.3% in early morning trade.

The yen appreciated to a three-week high against the euro as the Bank of Japan indicated the nation’s economy is recovering somewhat and its attempts to dispel lingering deflation are working.  The Japanese currency rose to as high as 132.37 versus the euro, the strongest level since October 10, while it gained 0.2% against the dollar to 98.40.  The positive economic outlook might signal to markets that further stimulus is unlikely at the moment and that is helpful of Japan’s currency.

High Income Economies…U.S. new factory orders jumped by 1.7% (m/m sa) in September after edging down by 0.1% in August.  The increase was partly due to a 12.9% surge in orders for transportation equipment, which came on the heels of a 1.8% increase in August.  Excluding transportation equipment, new factory orders dipped by 0.2% (m/m sa) in September compared to a 0.4% drop in August.  Orders for durable goods shot up by 3.8% in September after rising by 0.5% in August, while orders for non-durable goods fell 0.2% in September after a 0.6% drop in August.  On a three-monthly annualized basis, new orders declined 1.3% (3m/3m saar) in September, after growing 8.5% in August, while new orders excluding transportation grew at 4.2% (3m/3m saar) and 4.6% in September and August, respectively.

The U.S. Institute for Supply Management (ISM) non-manufacturing index climbed to 55.4 in October from 54.4 in September, with a reading above 50 indicating growth in the service sector.  Underlying improvement were increases in business activity and employment.  Growth of new orders eased and prices increased at a slower rate in October.  10 out of 18 non-manufacturing industries reported growth in October and a number of survey respondents indicated that they were negatively impacted by the government shutdown.

According to the European Commission, Euro Area GDP is expected to contract 0.4% (y/y) in 2013, unchanged from the previous estimate in May.  Economic growth is expected to gradually become more domestic demand-driven and more robust in the course of 2014 and 2015, with growth reaching 1.1% in 2014, and 1.7% in 2015.  EU real GDP is forecast to remain flat in 2013, and then to grow at 1.4% in 2014.  For individual countries: Germany is projected to grow 0.5% in 2013, 1.7% in 2014, and 1.9% in 2015.  France is expected to expand 0.2% in 2013, 0.9% in 2014 and 1.7% in 2015.  Spain will shrink 1.3% in 2013 and grow 0.5% in 2014.  Likewise, Italy will shrink 1.8% in 2013, grow 0.7% in 2014 and 1.2% in 2015.  The 2013 growth estimate for the U.K. was raised sharply to 1.3% from 0.6%, and is projected to then grow at 2.2% in 2014 and 2.4% in 2015.

Developing Economies… East Asia and Pacific: Philippines’ annual headline inflation, measured by the consumer price index, accelerated to 2.9% (y/y) in October, up from 2.7% in September due to higher food and clothing costs but remained within the central bank’s inflation target of 4% plus/minus 1 percentage points for 2013.  Food prices increased the most, rising 3.4% (y/y) from 2.5% in September, fueled by higher prices of rice, meat, fish and vegetables; while the cost of clothing rose 3% following a 2.9% increase in September.  Prices of alcoholic beverages and tobacco, and costs of housing, water, electricity, gas and fuels rose moderately. Month-on-month, prices eased to 0.1% in October from 0.6% in September. 
 
China’s Markit/HSBC purchasing managers’ index for the service sector rose to 52.6 in October from 52.4 in September, with new businesses, new orders and employment levels rising.  Official figures released earlier showed the services PMI rising faster to 56.3 in October and, in contrast to the HSBC survey, recorded a decrease in new orders. 
 
Europe and Central Asia: Romania’s central bank cut its interest rate, the monetary policy rate, by 25 basis points to 4% in November as inflation slows.  The central bank began the cycle of easing monetary policy in July 2013 with a 25-basis point- cut in the monetary policy rate in an effort to stimulate economic growth.
 
Latin America and the Caribbean: Brazil’s HSBC seasonally adjusted composite output index, which measures performance in the manufacturing and services sectors, increased to 52 in October from 50.7 in September. This eight-month high reading indicates that Brazil’s private sector economy expanded at a rapid pace in October.   While the new business index rose moderately in October, the rate of growth was at its fastest since February 2013; orders in the service sector grew strongly, and business intakes in the manufacturing sector stabilized.  The pace of job creation accelerated as firm continued to raise their workforces, and input prices paid by firms increased on account of higher costs of raw materials and labor.  The purchasing managers’ index for the service sector rose to 52.1 in October from 50.7 in September.
 
South Asia: India’s HSBC seasonally adjusted composite output index rose to 47.5 in October from 46.1 in September, remaining well below the 50 no-change mark.  This reading suggests that the private sector has continued to contract in October but at a moderate pace.  The service business activity index rose to 47.1 in October from 44.6 in September; employment rose slightly in the manufacturing sector but showed little change in the service sector, while input prices rose at their fastest pace in 16 months during October.
 
Sub-Saharan Africa: South Africa’s headline purchasing managers’ index increased to 51.5 in October from 49.8 in September, signaling a strong improvement in the private sector economy.  Contributing to this improvement were increases in new orders and employment.