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Prospects Daily: Global equities advance on better-than-expected China’s export data, Japan’s GDP growth slows, China’s annual headline inflation eases while the trade surplus widens to record level

Financial Markets…Global equities advanced on Monday despite weaker stocks in most European markets as better-than-expected Chinese exports data added to optimism on the global economy. In Asia, Japan’s Topix index and South Korea’s Kospi index climbed 1.6% and 1%, respectively. Meanwhile, European shares were mostly lower after Eurozone investor sentiment fell unexpectedly in December from near an 18-motnh high in November. Upbeat sentiment following Chinese trade data boosted developing-country shares with India’s Sensex index rising to a record high. U.S. equities also opened higher in morning trade, extending the strongest rally in four weeks for the S&P500 index.
 
The cost to insure Ukrainian government bonds against non-payment climbed to the highest level in four years as Russian cast doubt that Ukraine may soon join its custom union. Five-year credit default swaps on the country’s dollar debt rose 21 basis points (bps) to 1,119 bps today, the highest levels since January. The yield on Ukrainian sovereign dollar bonds due in 2014 climbed 75 bps to 10.15%. It has been reported that Ukraine needs at least $10 billion of external funding to avoid possible default.
 
High Income Economies…The economic outlook for most major countries is improving according to the Organization for Economic Cooperation and Development (OECD).  The OECD leading indicator, which is designed to anticipate turning points in economic activity relative to trend, moved up 0.07% (m/m) to 100.7 in October, continuing the upward trend seen in recent months.  Among member states, Japan is on track for growth above trend, and economic growth is firming up both in the United Kingdom and Germany.  Canada, France and Italy are poised for a positive change in economic momentum, while the United States is expected to grow around trend.  In the emerging economies, the leading index points to growth around trend in Brazil and to a tentative positive change in momentum in China, Russia and India.
 
Amid a tight labor market, U.K. permanent staff salaries grew at the fastest pace in November in six years, according to the Recruitment and Employment Confederation (REC) and KPMG. Employment in permanent and temporary/contract positions continued to rise in November. Rates of expansion remained strong in both cases, despite easing to five-month lows.  Vacancies increased at a faster pace in 15 years in November. At the same time, the availability of candidates to fill permanent roles fell further in November, with the rate of decline quickening to the sharpest since July 2007.
 
Due to weaker-than-expected inventory buildup and business investment, Japan's economy expanded 1.1% (y/y) in Q3, less than a preliminary estimate of 1.9%.  The latest quarter's performance is a sharp slowdown from the first half of the year, when Japan's economy grew around 4% per quarter, outperforming the U.S. and other developed economies.  In the latest quarter, exports fell, capital investment was flat, and consumer spending decelerated, making the economy more dependent on public spending.
 
Developing Economies…East Asia and the Pacific:  China’s annual headline inflation, measured by the consumer price index, eased to 3.0% in November, down from 3.2% in October owing to lower food prices.  This brought consumer price inflation to 2.6% for the year-to-November, below the government’s target of 3.5% for 2013. Driving the improvement in November, food prices slowed to 5.9% (y/y) from 6.5% in October; non-food prices rose 1.6% (y/y), prices of consumer goods increased by 2.9% (y/y) and the prices of services went up by 3.3% (y/y). Month-on-month, the CPI decreased by 0.1% as food prices fell by 0.2%.
 
Meanwhile China’s trade surplus widened to US$33.8bn in November, its highest level since January 2009 as exports largely outpaced imports. Exports grew 12.7% (y/y) to US$202.2bn in November. Sales to the EU grew the fastest, at 18.4% (y/y), followed by sales to the US (+17.7%, y/y), and sales to ASEAN countries (+16.7%, y/y); while sales to Japan slowed to 2.9%. Imports rose 5.4% (y/y) to US$168.2bn. For the year-to-November, China’s total trade surplus reached US$3.8trillion, up 7.7% from the same period last year, slightly lower than the Government’s target of 8% for 2013.
 
Europe and Central Asia: Turkey’s industrial production contracted by a seasonally adjusted 3.1% (m/m) in October after increasing by 5.8% (m/m, sa) in September. Year-on-year, industrial production grew 0.7%, markedly down from the 5.6% growth recorded in September.
 
Hungary’s trade surplus increased notably in October on the back of robust export growth. Exports grew 4.7% (y/y) to EUR7.7bn in October, while imports rose 2.7% (y/y) to EUR6.7bn; which allowed the surplus on the trade balance to rise to EUR781 million up from the surplus of EUR 617 million recorded a year ago. For the year-to-October, export grew 2% annually and imports rose 1.5%, resulting in a trade surplus of EUR6.2bn. 
 
Latin America and the Caribbean: Mexico’s annual headline inflation, measured by the consumer price index, accelerated to 3.62% in November from 3.36% in October due to higher prices of food, transport and telecommunication. The price increase was highest for communication, which rose 6.61% (y/y) followed by transport cost, which increased 6.28% (y/y), alcoholic beverages and tobacco prices, which climbed 5.0% (y/y), and food prices which moved up 3.5%. Month-on-month the CPI rose 0.93% in November, up from 0.48% in October, reaching its highest level in nearly two years.