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Prospects Daily: U.S. Treasuries set for longest monthly gain since 2006, Eurozone economic confidence rises to a 34-month high, Thailand’s trade balance swings into deficit in April; factory output falls

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Financial Markets

U.S. government bonds are heading for a fifth monthly gain, the longest since 2006, as low inflation and mixed economic data underlined appetite for long-term debt. Yields on the benchmark 10-year bonds fell 4 basis points (bps) to 2.48% and touched a low of 2.47%, the lowest level since July 22 last year. The 30-year bond yield also declined 4 bps to 3.32% and reached 3.31%, the least since May 15. U.S. 30-year yields have declined more than 60 bps from 3.97% at the end of 2013 and have fallen for five months or longer for the first time since June-November of 2006.

Developing-country equities advanced for the first time in three days, supported by a record rally in technology shares and a rebound in Russian stocks. The benchmark MSCI Emerging Market Index rose 0.5%, pushing this month’s gain to 4.3%, the biggest monthly gain since October. The gauge has risen 3.5% this year, compared with a 2.8% gain for the benchmark mature-market stock index. Notably, Russia’s Micex index rose 0.3%, extending its monthly advance to 8.9%, while Turkey’s Borsa Istanbul 100 Index jumped 1.6%, after tumbling 1.4% yesterday.

High Income Economies

The European Commission economic sentiment index for the Eurozone rose from 102.0 in April to 102.7 in May, the highest since July 2011. The latest increase surpassed economists’ expectations, beating the consensus forecast of 102.2. In terms of performance among sub indicators: industrial confidence, confidence in services, consumer confidence all strengthened, while sentiment among retailers remained unchanged.

Increasing for the first time in six months, German unemployment increased by around 24,000 to 2.91 million in May. The jobless rate remained unchanged at a seasonally adjusted 6.7% in May, as widely expected by economists. At the same time, the German ILO unemployment rate dropped to 5.3% in April from 5.5% in March.

The Swiss economy advanced 0.5% (q/q) in Q1 2014, up from a 0.2% expansion in Q4 2013. The latest increase was driven by a jump in merchandise exports (+2.0%) and investment (+0.5%), while government consumption and imports both declined 0.8%. Consumption expenditure was broadly flat, increasing by just 0.1%. Year-on-year, the economy advanced at a faster 2.0%, after growing 1.7% in Q4.

Developing Economies

East Asia and Pacific

Thailand’s trade balance swung into deficit in April, after recording a surplus for two consecutive months, as exports shrank 0.9% (y/y). Imports were also weak, falling 14.5% (y/y) but less than economists’ forecasts of an 18.2% decline. The trade balance moved from a surplus of US$1.4bn in March to a deficit of US$1.5bn in April, more than twice economists’ forecast.

Meanwhile industrial production fell for the 13th consecutive month in April, decreasing 3.9% (y/y) following a 10.5% (y/y) contraction in March, but less than economists’ forecast of a 6.4% decline.

Europe and Central Asia

Hungary’s producer prices continued to fall in April but at a slower pace, dropping 1.5% (y/y) in line with expectations, following a 1.9% (y/y) decrease in March. On a monthly basis, producer prices fell 0.8% after decreasing 0.6% in March.