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Global Daily: ECB signals possibility of more stimulus

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Financial Markets

European bonds and stocks traded higher while the euro fell on Thursday as the European Central Bank president Mario Draghi signaled more stimulus is on its way.  The Stoxx 600 stock index jumped 1.6 percent, and government bond yields fell sharply across the region, with the yields of peripheral Eurozone bonds posting the sharpest drops.  At the same time, the single currency slid more than 1.5 percent to below $1.12, the lowest level in two weeks.  

The U.S. Treasury Department is postponing an auction of 2-year notes that had originally scheduled for October 27 due to worries about the looming debt ceiling.  Treasury said it was concerned the auction wouldn’t be able to settle as scheduled on November 2, the day before the borrowing-limit deadline is reached.  Meanwhile, Treasury will still hold auctions for 5-year and 7-year notes set for next week, and it said postponing the 2-year note poses less risk for market functioning than for the longer-term debt.

High Income Economies

In addition to robust growth in new U.S. housing starts, further indications of housing market firming come from a 4.7 percent (m/m) increase in the sale of existing homes in September, and gains in prices at an annualized rate of 4 percent or higher since September 2012. The National Association of Homebuilders reported that sentiment among builders in October also rose to its highest level in a decade, and expects a bigger contribution to U.S. GDP growth from residential investment in the coming quarters.

The European Central Bank held the refinancing rate at 0.05 percent, the deposit rate at -0.20 percent and the marginal lending rate at 0.30 percent. The interest rates were last lowered by 10 basis points in September 2014.  However, the Bank signaled that it would review the “degree of monetary policy accommodation” through its asset-purchasing program in December as emerging markets growth prospects have weakened and recent developments in financial and commodity markets are posing risks to the growth outlook for the Eurozone.  

Consumer confidence in the Euro Area weakened in October, with the Consumer Economic Sentiment Indicator reported by the European Commission falling to -7.7 in October, from -7.1 in September (the indicator ranges from -100 to 100, where zero indicates neutrality). This is the lowest level since January 2015.  
U.K. retail sales rose sharply in September, increasing by 1.9 percent (m/m), and posting the biggest gain since December 2013.  Sales were led by household goods and auto fuel. Retail sales were up 6.5 percent (y/y). Separately, the budget deficit for September was the smallest for the month in 8 years, as revenues rose 3.9 percent (y/y), while expenditure increased by only 1.0 percent.

Developing Economies

East Asia and Pacific

Amid lower credit costs and easy access to funds, the MNI China Business Indicator surged 8.4 percent to 55.6, the largest increase since March 2011, following the 8.3 percent drop in September.  Interest rates has fallen to the lowest since 2012, as four rate cuts from the People's Bank of China this year filtered through the economy.

Latin America and the Caribbean
Brazil’s jobless rate was 7.6 percent in September, unchanged from August, which is the highest since March 2010. Unemployment has been increasing for the past 10 consecutive months.  The number of unemployed persons in six of Brazil’s major metropolitan areas was 1.85 million, broadly unchanged from 1.86 million in August.

Sub-Saharan Africa

Google is set to buy a 12 percent stake in the Lake Turkana Wind Power Project in Kenya, a project which is expected to generate 310 megawatts (MW) equivalent to 15 percent of the nation's energy by April 2017. At Ksh70 billion (€625 million), the project is the largest single private investment in Kenya’s history and is the largest wind investment in Africa.  It is hoped that the project will attract more investment into Africa’s energy sector.

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