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Prospects Daily: Developing-country currencies weaken, Japan's current account balance jumps, China’s annual headline inflation edges higher

Financial Markets… U.S. Treasuries fell the most in two months last Friday, with the benchmark 10-year yield jumping 15 basis points to a seven-week high of 2.75%, as a robust U.S. job data heightened speculation that the Federal Reserve will reduce its stimulus program sooner than expected. The bond market has been hit by a series of positive U.S. data points, which showed economic improvements. U.S. bond market is closed for Veterans Day on Monday.
 
The euro strengthened versus the dollar for the first time in three days after falling sharply last week following the rate cut by the European Central Bank. The 17-nation common currency appreciated 0.2% to $1.3396 in morning trade after sliding to $1.3296 on November 7, the least level since September 16. The euro also gained against the Japanese yen, climbing 0.3% to 132.83 yen.
 
Many developing-country currencies weakened on Monday, led by Indian and Indonesian currencies, as a better-than-expected U.S. jobs report dented optimism for prolonged Federal Reserve stimulus. The India’s rupee depreciated 1.3% to 63.281 per dollar and the Indonesia’s rupiah fell 1% to a one-month low of 11,551 per dollar, while the South Africa’s rand weakened for a fifth-consecutive day. Furthermore, the Philippine’s peso fell 0.9% to 43.580 per dollar, the biggest drop since August 22, and the country’s shares tumbled 1.4% after Super Typhoon Haiyan devastated many parts of the country.
 
High Income Economies…Italy's industrial production advanced 0.2% (m/m sa) in September, offsetting August's 0.2 fall.  Manufacturing production also edged by 0.1% after being flat in August.  Capital goods production rose 0.4% from August while output of intermediate goods, consumer goods and energy all declined.  On a three-monthly annualized basis, total industrial production actually declined 3.6% (3m/3m saar) in September, compared to August’s decrease of 1.9%.  Manufacturing production also declined by 2.5% (3m/3m saar) in September, compared to an increase 0.1% in August.
 
Boosted by stronger exports of motor vehicles and an increase in overseas earnings, Japan's current account balance rose 14.3% in September from August to ¥587.3bn.  However, seasonally adjusted figures showed Japan ran a ¥125.2bn deficit in September, its first since February.
 
Consumer price inflation in the Czech Republic edged down in October, as the consumer price index rose 0.9% (y/y) in line with expectations, and marginally weaker than September's 1.0 % increase.  The slowdown in the annual rate of inflation was largely due to slower increase in prices of food, alcoholic & non-alcoholic beverages and tobacco.  Month-on-month, the CPI rose 0.2% (m/m nsa) compared with August’s decline of 0.4%.
 
The buoyant Australian housing market shows no signs of slowing down, with the number of owner-occupier mortgages approved increasing more-than-expected by 4.4% (m/m sa) in September, compared to August’s decline of 4.0%.  The increase came a month after the Reserve Bank of Australia cut its interest rate to a record low of 2.5%.  The value of loans for investment housing rose 5.2% in September after rising 0.6% in August.
 
Developing Economies…East Asia and Pacific: Malaysia’s industrial production increased at a moderate pace in September, rising 1.0% (y/y) compared with a 2.7% (y/y) increase in August. Contributing to this slowdown, manufacturing production decelerated to 2.4% (y/y) in September from a 5.2% (y/y) expansion in August; mining output fell 4.2% (y/y), while electricity production increased 4% (y/y).  Month-on-month, seasonally adjusted, industrial production increased 2.2%, boosted by manufacturing output which rose 5.9%,  and electricity output, which increased 4%, while mining output decreased 1.8% from August.
 
China’s annual headline inflation, measured by the consumer price index, edged higher in October, rising to 3.2% (y/y) from 3.1% (y/y) in September but remaining within the government’s target of 3.5% for 2013.  The October CPI reading was the highest since February 2013 when the CPI stood at 3.2%. The increase in the CPI was largely due to higher food prices, which rose 6.5% (y/y), the most since 2012.  Non-food inflation was unchanged at 1.6% (y/y) from September, with transportation and communication costs falling 0.6% (y/y) and cost of services rising 3.1% (y/y). Month-on-month consumer prices rose 0.1%, slower than the consensus forecast of 0.2%.
 
Latin America and the Caribbean: Mexico’s industrial production fell 1.6% (y/y) in September reflecting lower export growth and the effects of two hurricanes that hit Mexico’s Pacific and Gulf coasts, destroying crops and roads and bridges.  In the year to September, exports grew 2.25%, slower that the 6.15% increase during the same period in 2012. Year-on-year, manufacturing output rose 1.2%.
 
South Asia:  India’s trade deficit rose sharply to US$10.56bn (m/m) in October, up from US$6.76bn in September, driven by gold imports; but it was lower than the trade deficit of US$20.2bn recorded in October last year.   Year-on-year, total imports fell 14.5% to US$37.8bn in October, while exports grew 13.5% to US$27.3bn boosted by the depreciation of the currency, which helped make exports of products such garments, car parts and IT more competitive.