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DECPG Daily : May 24, 2013 - Bond yields are up…German business confidence improves, Italian drops…Peru GDP slows

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Financial Markets…Japans’ Topix index gained 0.5% today, bouncing backing slightly from its biggest drop since the 2011 earthquake and nuclear disaster. Yesterday’s plunge, which many investors suggested marked a long-overdue correction, cut the Topix’s 2013 gain to 38% to 48%, and erased $314 billion in stock market valuation.

U.S. Treasuries geared for a fourth consecutive weekly drop, with the benchmark 10-year surging to the highest level since March yesterday, as stronger-than-expected durable goods orders in April added to signs that the U.S. growth is gaining its traction. The 10-year yield has climbed 5 basis points this week to 2% as of Friday morning.

Spanish and Italian government bonds retreated for a second day today, pushing their 10-year yields to the highest levels in a month, as lingering worries over the U.S. stimulus damped demand for higher-yielding debt. Spain’s 10-year yield widened 12 basis points to 4.41%, the most since April 25, while similar-maturity Italian yield also climbed 12 bps to 4.15%, the highest since April 22.

High-income EconomiesIn the US, durable goods orders, excluding volatile transport orders, rose 1.3% (m/m sa) in April after a 1.7% drop the previous month, with total orders up by 4.1% annualized in the three months to April. The recovery in momentum follows two weak months. Separately, new home sales climbed 2.3% (m/m saar) to a seasonally adjusted annual rate of 454,000 in April from the revised March rate of 444,00.

German business confidence improved in May, with the Ifo sentiment index rising to 105.7 from 104.4 in April led by improving assessments of current conditions and steady expectations of future business conditions.

Italian consumer confidence declined unexpectedly in May, with the consumer confidence index falling to 85.9 in May from 86.3 in April. The economic climate index dropped to 70.5 from 73.3 in April. However, consumers' assessment of their personal financial climate rose to 92 from 90.5 in the previous month.

Developing EconomiesEast Asia and the Pacific: China’s central bank swung back to liquidity injection mode this week with 128 billion yuan ($20.9 bn) being pumped into the banking system through its regular open market operations. This marked a turn-around in the central bank's open market operations from last week when they drained 35 billion yuan from banks.

Philippine imports declined at a faster pace falling by 8.4% (y/y) in March, faster than a 5.8% (y/y) decline in February. Imports have now declined for three consecutive months. Exports showed grew slightly by 0.1% (y/y) resulting in a sharply lower trade deficit of $593mn, less than $1.05bn deficit in the same month last year.

Latin America and the Caribbean: Peru’s GDP growth slowed to 2.1% (q/q saar) in 2013Q1, down from 2.7% (q/q saar) in the previous quarter. Growth registered was the slowest rate since 2009Q2 as drop in commodity prices hurt exports and investments dropped off.
Mexico's unemployment rate increased to 5.14% (sa) in April, up from 5.03% from March.

Middle East and North Africa: Lebanon's trade deficit narrowed 4.8% (y/y) in the first four months of 2013, down from the 10.4% (y/y) decline in the first quarter. Deficit reduction was nearly equally due to a decline in imports and a rise in exports, which is unusual since Lebanon's imports outweigh exports 5:1. Imports fell 2.1% (y/y) in April while exports rose 8.9% (y/y) as fuel exports (mostly gas oils) surged 20-fold of which 95% went to Syria. While Lebanon's fuel exports multiplied 20-fold in value, quantities exported increased only 2.5 times, suggesting that the prices Lebanese fuel exporters are receiving in Syria have increased ten-fold.

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