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Prospects Daily: Developing-country stocks and currencies advance, Bank of England pledges continued low interest rate, China’s export growth rises strongly in January

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Financial Markets…Italy’s 10-year government bond yield fell to an eight-year low of 3.66% on Wednesday as bonds of euro-zone’s high debt and deficit countries extended a rally that has sent borrowing costs from Greece to Portugal to the lowest levels since 2010. Italy sold €8 billion of one-year Treasury bills at a record low yield of 0.676% today as investors shrugged off ongoing political tension within the nation’s government. The country is scheduled to return to the bond market tomorrow with the sale of as much as €7.5 billion of bonds due from 2016 to 2044.

Developing-country stocks advanced to the highest levels in three weeks and currencies strengthened as upbeat Chinese trade data boosted market sentiment. The benchmark MSIC Emerging Market Index added 1%, extending its rally from five-month lows reached earlier this month. The JPMorgan index of developing-nation currencies gained 0.2%, advancing for a second day, with the Korean won, the Indonesian rupiah, the Philippine peso, and the Thai baht all climbing at least 0.5%.

High Income Economies…Industrial production for the Eurozone and EU28 both declined by 0.7% (m/m sa) in December. In November, industrial production rose for the Eurozone and EU28 by 1.6% and 1.3% respectively. The decline in the Eurozone was led by capital goods (-2.1%), and energy (-2.1%). Non-durable consumer goods also dropped by 0.1%, while durable consumer goods rose by 0.4%. On a three-monthly annualized basis, Eurozone industrial production increased by 1.3% (3m/3m saar) in December, following a 0.8% increase in November.

The Bank of England hinted that the interest rates are unlikely to rise anytime soon, even though the unemployment rate is estimated to have fallen to the 7% threshold in January. In the quarterly Inflation Report, the BoE's Monetary Policy Committee suggested that the interest rate is set to rise only in Q2 2015.

Germany raised its GDP growth forecast for this year from 1.7% to 1.8% due to an expected improvement in domestic demand. In 2015, growth is seen picking up further to 2%. This year, the primary boost to the economy will come from a 2% growth in domestic demand, which has been upgraded from the 1.9% forecast earlier.

Developing Economies…East Asia and Pacific: China’s export growth increased at a fast pace in January, rising 10.6% (y/y), buoyed by exports to the European Union, which rose more than 10.0% (y/y). Imports also surged in January, rising 10% (y/y). As a result of these developments, the trade balance recorded a surplus of US$31.9bn (y/y) in January, up from US$25.6bn in December 2013.

Malaysia’s GDP increased at the annualized growth rate of 5.1% in the fourth quarter of 2013 after rising 5% (y/y) in the third quarter, the fastest annual pace in the last four quarters, supported by private sector demand and exports. Quarter-on-quarter, GDP grew at the seasonally adjusted rate of 2.1% following a 1.7% increase in the previous quarter. For the year 2013 as a whole, GDP grew 4.7%, down from 5.6% in 2012.

South Asia: India’s consumer price inflation slowed in January, easing to 8.8% (y/y) from 9.9% in December 2013, the lowest annual inflation rate since January 2012, helped by lower food prices. Prices of food and beverages eased to 9.9% (y/y) in January from 12.2% in December; while cost of clothing and footwear rose 9.2% (y/y) and cost of fuel and electricity increased 6.5% (y/y). Consumer price inflation slowed to 8.1% (y/y) from 9.1% in December in urban areas; and eased to 9.4% (y/y) from 10.5% (y/y) in rural areas.

Meanwhile, India’s industrial production fell for the third consecutive month in December 2013, decreasing 0.6% (y/y) after contracting 1.4% (y/y) in November. Manufacturing output decreased 1.6% (y/y) following a 3.5% (y/y) decline in November.

Sub-Saharan Africa: Ghana’s annual headline inflation, measured by the consumer price index, accelerated to 13.8% in January after rising to 13.5% in December 2013, bringing headline inflation to its highest rate since February 2010. Contributing to the January inflation reading, cost of housing, water, electricity, gas and other fuels surged 37.9% (y/y), transport prices increased 21.4% (y/y), clothing and footwear rose 20.2% (y/y), and food prices edged up 7.1% (y/y). Month-on-month, prices rose 3.9% in January, driven by higher food prices.