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Prospects Daily: U.S. Treasuries slid from five-week high, U.K. business confidence highest among developed nations, India’s consumer price inflation slows to record low

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Financial Markets

U.S. Treasuries fell for the first time in six trading sessions on Monday before reports project to show rises in U.S. retail sales and industrial production, adding to increasing signs that the economic recovery is gaining traction. The benchmark 10-year yield climbed 3 basis points to 2.55% after touching 2.49% last week, the lowest rate since June 2. Investors are currently waiting for tomorrow’s congressional hearing by Federal Reserve Chair Janet Yellen, which might give some directional information on the central-bank’s plan to exit stimulus program and raise the federal fund rate next year.

Gold prices are heading for the steepest drop in nearly 7 months as easing worries over Portuguese banking woes and rallying global equities weakened demand for safe-haven assets. Gold futures for August settlement fell 2.2% to $1,307.50 an ounce in New York morning trading, posting the biggest loss for a most-active contract since December 19. The drop came after gold capped the longest run of weekly advances since 2011.

High Income Economies

Amid weakening global sentiment, the U.K.'s business optimism was highest among the developed nations in June according to Markit's Global Business Outlook survey. Marking the highest levels since February 2013, Japan's business confidence surged in June after declining in the previous survey as fears of the effect of the April sales tax hike eased. Business sentiments in France and Germany fell sharply in June, while Spain's business confidence held steady at a post-crisis high. Optimism rose to a 3-year high in Italy, and business activity expectations remained unchanged in the U.S.

Suggesting difficulties in generating and sustaining a meaningful expansion, Eurozone industrial production fell 1.1% (m/m) in May, the largest drop since September 2012, and more than reversing the 0.7% rise in April. The decline was wide spread among sub sectors, with production of durable consumer goods and non-durable consumer goods falling 1.8% and 2.2%, respectively. Similarly, production of intermediate goods slid 2.4% and capital goods fell by 0.5%. Partially offsetting the reduction, energy output advanced 3%.

Developing Economies

East Asia and Pacific

China’s fiscal expenditures accelerated in June, rising 26.1 (y/y) faster than the 24.6% (y/y) increase recorded in May, as the government boosted spending to support growth. At the same time, fiscal revenue rose 8.8% (y/y) faster than the 7.2% (y/y) growth in May.

Europe and Central Asia

Romania’s current account balance in the five months to May recorded a deficit of EUR351 million compared with a surplus of EUR191 million in the same period the previous year as the deficit in the income account widened to EUR2.2bn from EUR1.3bn last year. At the same time, the merchandise and services trade balance moved into a surplus of EUR205 million from a deficit of EUR186 million while the surplus in the current transfers account rose to EUR1.7bn from EUR1.6bn.

South Asia

India’s annual consumer price inflation slowed for the second consecutive month and more-than-expected to 7.31% in June, the lowest rate on record, owing to lower food prices, following an 8.3% increase in May. Economists’ forecast was for consumer price inflation to fall moderately to 7.9%. Meanwhile, India’s annual wholesale price inflation slowed to a four-month low 5.43% in June, down from 6.01% in May, as food and fuel prices rose at their slowest pace this year. Month-on-month, wholesale price inflation slowed to 0.50% in June following a 0.83% increase in May.