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Prospects Daily: Developing-country stocks climb to 4-month high, IMF sees U.S. driving global growth amid weakness in Brazil and Russia, Indonesia’s central bank leaves key interest rates unchanged

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Financial Markets…Developing-country stocks rallied to a four-month high on Tuesday amid growing speculation Chinese government will take further measures to bolster economic growth. A pick-up in commodity prices also support the stock rally, especially in Brazil where commodity producers account for nearly one third of the nation’s stock market weighting. The benchmark MSCI Emerging Market Index rose 0.8%, led by a 2.4% gain in China’s CSI 300 index. Emerging-market currencies gained as well with South Africa’s rand rising to the highest level since January 1 against the dollar and Turkey’s lira strengthening for a third day versus the dollar.

Ukraine’s international bonds due in 2023 fell to the lowest level in two weeks amid renewed tensions between the country and Russia. The yield on the country’s 2023 Eurobonds climbed 19 basis points to 9.46%, the highest since March 25. Ukraine’s currency, the hryvnia, depreciated 1.1% versus the dollar to a record low of 11.825. The country is facing about $10 billion in external debt obligations this year, but it is expected to receive $13.5 billion of international aids including loans from the International Monetary Fund.

High Income Economies… In the latest World Economic Outlook, the IMF sees stronger U.S. growth this year and the next that will help the world economy withstand weaker recoveries in emerging markets including Brazil and Russia. Global growth is estimated to reach 3.6% this year, and accelerate to 3.9% in 2015. In addition, the IMF is urging emerging markets to prepare for flows of capital back to advanced economies, and advising the European Central Bank that more monetary easing is needed now to keep deflation at bay. Similarly, the U.S. will benefit from a longer period of record-low interest rates orchestrated by the Federal Reserve, strong private demand and the end of a fiscal drag that slowed growth last year.

Signaling weakening growth in most emerging economies but continued positive growth prospects in member economies, the OECD leading index, designed to anticipate turning points in economic activity, remained at 100.7 in February. For the OECD as a whole, and for the United States and Canada, indicators point to growth remaining around trend. On the other hand, growth is set to remain below trend in Brazil and India, while Russia is losing momentum.

The Bank of Japan left its monetary policy unchanged, increasing the monetary base at an annual pace of about JPY 60-JPY 70 trillion, and maintained its upbeat economic outlook even after the government raised the sales tax this month for the first time since 1997.

Developing Economies…East Asia and Pacific: At its April 8th 2014 meeting, Indonesia’s central bank left key interest rates unchanged for the fifth consecutive meeting as expected. The reference rate was maintained at 7.50 %; and the deposit facility rate and lending facility rate were left unchanged at 5.75% and 7.50%, respectively. The central bank noted that interest rates were consistent with efforts to bring inflation down toward its target of 4.5+/-1% for 2014 and to reduce the current account deficit to a more healthy level.

Europe and Central Asia: Turkey’s industrial production fell 0.1% (m/m) in February, its first decline in four months, following a 1.0% (m/m) increase in January. Year-on-year, industrial production growth eased from 7.1% in January to 4.9% in February, the slowest increase since November 2013 when industrial output expanded by 4.7%. Contributing to this slowdown, mining and quarrying output growth slowed to 11.0% (y/y) from 11.6% in January, and manufacturing output growth eased to 4.4% (y/y) from 7.4% (y/y).

Meanwhile, Bulgaria’s industrial production growth improved in February, rising at the non-seasonally adjusted pace of 8.1% (y/y) after having increased 6.1% (y/y) in January, exceeding expectations. The February reading was the highest since March 2011, when production increased 9.5% (y/y). Month-on-month, industrial production expanded at the seasonally and working day adjusted pace of 1.6% following a 3.2% (m/m) increase in January. In the two months ended in February, industrial production grew 7.1% from a year ago.