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Prospects Daily: Developing-country stocks advance, German economic confidence highest in 7 years,Turkish monetary policy unchanged

Financial Markets…The dollar rose slightly against the euro but fell versus the yen on Tuesday ahead of a two-day Federal Reserve meeting that investors hope will finally clarify when it plans to reduce its quantitative easing program.  The speculation over the timing of the Fed’s QE tapering has dominated market sentiment worldwide for months as investors worry an end of cheap money may trigger a tumultuous reaction from global financial markets.  The greenback slid 0.1% to 102.97 yen, after reaching a five-year high of 103.92 yen last week, while it gained 0.1% to $1.3752 per euro.

Developing-country stocks advanced snapped a five-day decline as an upbeat tone in Asian stocks (following news of robust U.S. industrial production and a pick-up in Eurozone business activity) pushed the benchmark index higher.  But gains were limited as investors remained cautious as the Federal Reserve’s last policy meeting of the year nears.

High Income Economies…With a steep drop in energy prices being offset by increases in prices for shelter and airline fares, U.S. consumer prices, as measured by the consumer price index (CPI), came in unchanged in the month of November.  The CPI had edged down by 0.1% (m/m sa) in October.  Meanwhile, the core consumer price index, which excludes food and energy prices, rose by 0.2% following a 0.1% uptick in October.  On a three-monthly annualized basis, the CPI increased 1.1% (3m/3m saar) following a 1.8% increase in October, while the core CPI increased 1.6% in both November and October.

Suggesting that the Eurozone recovery is gaining strength, the German ZEW indicator of Economic Sentiment climbed for the fifth month in a row from 54.6 in November to 62 in December, the highest since April 2006.  At the same time, the indicator of the country's current economic situation advanced to 32.4 in December from 28.7 a month earlier.  Economic expectations for the Eurozone turned more optimistic, with the corresponding indicator rising to 68.3 from 60.2 in November. The current conditions index for the euro area also rose by 7.2 points to -54.4.

In line with expectations, the Czech Republic central bank, the Czech National Bank, kept its policy interest rate, the two-week repo rate, unchanged at 0.05% for the ninth time in a row.  The discount rate was maintained at 0.05%.  At the same time, the Bank reiterated its commitment to intervene in the foreign exchange market to arrest the appreciation of the koruna, and maintain its exchange rate against the euro near the level of 27 CZK / EUR.

In line with expectations, the unemployment rate in Hong Kong SAR, China remained unchanged at 3.3% during three months to November, same as that in August to October. At the same time, the underemployment rate decreased to 1.4% in September to November from 1.5% in August to October.

Developing Economies…Europe and Central Asia:  At its meeting of December 17th, the Monetary Policy Committee of Turkey’s central bank decided to leave its benchmark interest rate, the one-week repo rate, unchanged at 4.5% noting that the current policy stance was sufficient to contain inflation risks.  In addition to the one-week repo rate, the borrowing rate and the overnight lending rate were also left unchanged at 3.50 percent and 7.75 percent respectively. 
 
Latin America and the Caribbean: Colombia’s trade balance recorded a deficit for the second consecutive month in October, at US$0.5bn, up from a deficit of US$0.31bn in September.  In October 2012, the trade balance recorded a surplus of US$0.23bn.  The trade deficit in October was brought on by a fall in exports and an increase in imports.   Exports fell 11% (y/y) as shipments of oil and mining decreased 10.6% and exports of agricultural products declined 4.5% on account of lower sales of sugar and bananas. Mitigating these declines, shipments of manufactured products rose 1.7% (y/y) helped by higher sales of chemical products and pharmaceuticals, and crude oil sales increased 1%.  Meanwhile, imports rose 2.1%, boosted by higher purchases of oil and mining products, and manufactured goods.  
 
Sub-Saharan Africa: Nigeria’s annual headline inflation, measured by the consumer price index, rose to 7.9% in November, after falling to its lowest level in more than five years at 7.8% in October.  The rise in inflation was due to higher food prices, which rose 9.4% (y/y) from 9.2% in October reflecting higher prices of meat, fish, bread and cereals.  Among non-food products, cost of clothing rose 7.6% (y/y) from 7.3%, cost of housing climbed 6.2% from 5.8%, cost of transport increased 0.2 percentage point to 6.9%, and cost of health care rose to 6.9%.  Core inflation, which excludes volatile agriculture products, increased for the consecutive month to 7.8% in November from 7.6% in October, reflecting higher prices of furniture and furnishings, vehicle spare parts and clothing materials.  Month-on-month, the CPI decreased marginally to 0.72% from 0.75% in October.