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Prospects Daily: Global stocks fall to near 4-month low, U.S. Factory orders pull back In December, Brazil records highest trade deficit in January

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Financial Markets… Global stocks fell to near a 4-month low on Tuesday as concerns over a slowdown of the U.S. economy in the wake of weaker-than-expected manufacturing activity exacerbated the global risk-aversion caused by a sharp sell-off in developing countries. The current market turmoil has wiped out about $2.9 trillion from world stock markets thus far this year. Japan’s benchmark Nikkei index slumped 4% in its worst sell-off since June, remaining the worst performer among developed-country benchmark stock indices this year. The MSCI Emerging Market stock index declined as much as 1.4% to the lowest level since August 29 earlier, but the index trimmed some of its losses as Latin American equities opened higher. Meanwhile, U.S. equities advanced in morning trading, with the S&P 500 index rebounding from yesterday’s 3-month low level, as less-than-estimated decline of U.S. factory order in December improved market sentiment.
 
Russia cancelled its domestic bond auctions for the second consecutive week on Tuesday as emerging-market woes pushed yields on the country’s benchmark bonds to record highs. Yields on so-called OFG bonds have climbed by as much as 80 basis points since the beginning of the year amid deteriorating risk appetite for risker emerging-market assets. The Russian ruble has depreciated 6.4% against the dollar this year, which has also curtailed investors’ appetite for Russian government bonds.
 
High Income Economies…New orders for U.S. manufactured goods fell by 1.5% (m/m) in December following a revised 1.5% increase in November.  The drop in factory orders largely reflected a sharp pullback in orders for transportation equipment, which tumbled by 9.7% in December after jumping by 8.1% in November.  Excluding orders for transportation equipment, factory orders actually rose by 0.2% in December compared with a 0.3% increase in November.
 
According to the German Chamber of Commerce (DIHK), German GDP is set to expand at a faster pace this year than estimated earlier, supported mainly by the improving trend in external demand.  The agency expects gross domestic product to grow 2.0% this year, revised up from the 1.7% growth forecast earlier.
 
Rising for a third consecutive month, the SABB HSBC Saudi Arabia PMI for the non-oil private sector increased from 58.7 in December to 59.7 in January, signaling the sharpest expansion since October 2012.  Growth was mainly supported by rapidly rising levels of output and new export orders. The former rose at its strongest rate for 15 months, while new export orders rose at the fastest pace for 3 months.  Rapidly growing domestic demand was complemented by strengthening foreign orders amid reports of an improving business climate.
 
Developing Economies… Europe and Central Asia:  Romania’s central bank cut its benchmark interest rate by 25 basis points to record low 3.5%, effective February 05, 2014. The central bank also decided to keep minimum reserve requirement ratios on local currency and foreign-currency denominated liabilities of credit institutions at 12% and 18%, respectively. 
 
Latin America and the Caribbean: Brazil’s trade balance moved into a deficit of US$4.1bn in January, the largest on record, after posting a surplus of US$2.6bn in December. Month-on-month, exports fell sharply, decreasing by 24%; but increased moderately year-on-year, rising by 0.38%, helped by sales of raw materials. Meanwhile, imports rose 10.4% (m/m) and 0.4% (y/y) led by imports of consumer and capital goods. The record trade deficit followed a weak trade performance in 2013, with Brazil’s recording its smallest trade surplus in more than 10 years.
 
Separately, Brazil’s industrial production contracted in December 2013, decreasing 2.3% (y/y) after rising 0.3% (y/y) in November.  Contributing to the December contraction, output of intermediate goods fell 2.0% (y/y), production of consumer durable goods declined by 3.5% (y/y), and production of non-durable consumer goods decreased by 3.1% (y/y).  Mitigating these declines, production of capital goods grew 1.8% (y/y). Month-on-month, industrial production fell 3.5% in December, following a 0.6% decline in November.
 
Middle East and North Africa: Egypt’s seasonally adjusted purchasing managers’ index for the non-oil private sector fell to 48.7 in January from 52 in December 2013, moving below the 50 mark, which signals contraction. Output fell for the first time in three months; reflecting lower domestic demand, new orders fell, and firms reduced their payrolls slightly.  Input costs rose further in January driven by unfavorable exchange rates and higher prices of raw materials; in response, selling prices rose.