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Prospects Daily: Bulgarian banking woes ease, U.S. pending home sales jump, Mexico’s trade surplus narrows

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Financial Markets

Bulgaria’s banking crisis alleviated on Monday after the European Union approved the country’s request to provide 3.3 billion levs ($2.3 billion) in state aid for lenders as a precautionary measure. The government appealed for calm and arrested people suspected of trying to disrupt the country’s banking system. Led by banking shares, the country’s benchmark stock index (Sofix) climbed 4.2% today, posting the biggest gain in the world and recovering from a six-month low level reached last week.

Argentina is set to miss a bond payment due today, putting the country on the brink of its second default in 13 years, after a U.S. federal judge blocked the country’s attempt to pay holders of its restructured debt until the government settles with holdout creditors of defaulted debt. But the country has a 30-day grace period after missing the $539 million interest payment to seek a settlement with a group of defaulted bondholders who did not agree to debt-restructuring deals struck in 2005 and 2010. A decade-long legal battle between Argentina and holdout creditors from the country’s $95 billion sovereign debt default in 2001 has kept the country virtually shut out of international bond market for the past 13 years.

High Income Economies

With lower mortgage rates and increased inventory accelerating the market, the U.S. National Association of Realtors (NAR) pending home sale index jumped 6.1% (m/m) to 103.9 in May from 97.9 in April, while economists had expected the index to rise by about 1.0%. While the jump in May reflected the biggest monthly increase since April 2010, the index remains down by 5.2% (y/y) compared to May 2013.

With food prices falling but the cost of services and energy rising, flash estimates indicate that Eurozone annual inflation remained unchanged from May at a low 0.5% (y/y) in June, slightly less than economists’ forecasts of 0.6%, perhaps prompting the European Central Bank (ECB) to undertake more actions to calm fears of deflation and kick start the flattening recovery. Headline inflation has been below the ECB's target of 'below, but close to 2%' for the 17th consecutive month. Core inflation that excludes energy, food, alcohol and tobacco, rose marginally to 0.8% in June, from 0.7% in May.

Danish GDP grew 0.8% (q/q) in Q1, slightly slower than economists’ estimated, following Q4’s revised decline of 0.3%. Private consumption growth was revised down to 1.5%, while growth in gross fixed capital formation was revised up to 3.6%. Exports growth was revised up to 2.2% and imports growth to 4.6%. Year-on-year, GDP rose 1.3% (y/y) in Q1, revised down from the 1.4% growth estimated earlier.

Developing Economies

Europe and Central Asia

Turkey’s trade deficit decreased for the fifth straight month by 28.7% (y/y) to USD 7.1 billion in May, driven by a fall in imports. Year-on-year, exports increased 3.6%, and imports fell 10.3%, while on a monthly basis, exports increased 0.3% (m/m sa) and imports rose 2.9% in May.

Latin America and Caribbean

The Mexican trade surplus narrowed for the second consecutive month to US$132 million in May from US$ 510 million in April, and a sharp turnaround from the US$ 460 million deficit posted a year earlier. Both exports and imports increased 1.3% (m/m sa) in May. Year-on-year, exports rose 4.7% (y/y), while imports increased 2.8%.

Sub-Saharan Africa

South African trade deficit decreased to ZAR 0.7 billion in May from a revised ZAR 12.4 billion in April. It is the lowest shortfall in three months, due to a sharp fall in imports. Exports rose a meager 0.6% (m/m), while imports decreased sharply by 5.9% due to plunging purchases of vehicles and transport equipment. The cumulative deficit for 2014 increased to ZAR 47.1 billion, from the ZAR 34.6 billion deficit over the same period in 2013.

Accelerating for the third straight month to the highest since October 2013, the Kenyan annual inflation rate edged up slightly to 7.4% (y/y) in June from 7.3% in May. On a monthly basis, consumer prices increased 0.1% (m/m) in June, following a 1.3% rise in May. Food price increases slowed to 0.3% while cost of housing, water, electricity, gas and other fuels went up 0.7%.