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Prospects Daily: ​Euro continues to fall against dollar on intensifying geopolitical tensions, U.S. leading economic and consumer sentiment indexes disappoint, Mexico’s jobless rate eases more-than-expected in June

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Financial Markets
 
The euro weakened against the dollar on Friday, dropping below the psychologically significant $1.35 level for the first time since February—the threshold that’s regarded by some currency traders as the dividing line between success and failure for the European Central Bank’s measures to shore up growth—, amid geopolitical tensions heightened by the downing of a Malaysia airliner in Ukraine. The single currency reached $1.3491 in earlier trading, the lowest level since February 6. The 18-nation currency has been declining this week against the greenback after Federal Reserve Chair Janet Yellen told lawmakers interest rates may rise sooner than markets expected.
 
Oversea investors are increasing their holdings of Mexico’s local government bonds to a record level amid expectations that lawmakers will finally approve rules to open the energy sector, ending the country’s seven-decade-old oil monopoly. Foreigners are currently holding 2 trillion peso ($154 billion) of the nation’s Treasury securities, accounting for about 38% of the total, according to the latest data from the central bank. Yields on Mexico’s fixed-rate government debt have tightened 70 basis points this year, more than twice the average for developing-country debt.
 
 
High Income Economies
 
Showing that economic activity continued to expand moderately, the Conference Board leading economic index for the U.S. rose by 0.3% in June following an upwardly revised 0.7% increase in May.  The increase reflected increases by six of the ten indicators that make up the index, and was slightly less than expected as economists had been expecting the index to climb by 0.5%.
 
At the same time, a preliminary reading for the Thomson Reuters and the University of Michigan U.S. consumer sentiment index for July came in at 81.3 compared to the final June reading of 82.5.  The drop came as a surprise to economists, who had expected the consumer sentiment index to edge up to 83.0.  The unexpected decrease by the headline index reflected a deterioration in consumer expectations, as the gauge of consumer expectations fell to 71.1 in July from 73.5 in June.  On the other hand, the survey's barometer of current economic conditions rose to 97.1 in July from 96.6.
 
Canadian consumer prices rose 2.4% (y/y) in June, following a 2.3% increase in May. While prices increased in all major components, cost of shelter, food and transportation contributed the most to the rise.
 
 
Developing Economies
 
East Asia and Pacific  
China’s new-home prices fell in 55 of the 70 cities in June compared to the previous month, the most since January 2011, as developers cut prices to boost sales volume.  The largest monthly decline among all the cities was recorded in the city Hangzhou where new-home prices fell by 1.7%. Year-on-year, new-home prices increased in all the cities, with the exception of Wenzhou.
 
Latin America and Caribbean  
Mexico’s unemployment rate fell to 4.8% in June, down from 4.92% in May and lower than economists’ forecast of 4.95%, with 95.2% of the economically active population employed. After seasonal adjustment, the unemployment rate fell to 4.84% from 5.0% in May, whereas market expectations were for the seasonally adjusted unemployment rate to rise to 4.96%.
 
Brazil’s business confidence decreased for the third consecutive month to 46.4 in July from 47.5 in June, more than economists’ forecast.