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Prospects Daily: U.S. Congress voted to temporarily suspend debt ceiling, South Korea’s growth hits three-year low in 2012, but pace of growth accelerates, China’s and Germany’s Flash Markit PMIs point to strengthening economic activity

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Financial Markets…Portugal sold €2.5 billion ($3.3 billion) of 5-year government bonds, which was the first 5-year maturity issue in nearly two years, as the country began to regain access to long-term bond markets. The bond was priced at a yield of 4.9% and total investors ‘demand reached €12 billion. Foreign investors bought 93% of the debt, with investors from the U.S. and U.K. accounting for 60% of the issue.

Developing-country stocks slid the most in more than a week, with the benchmark MSCI Emerging Market Index falling 0.4%, as weak corporate-earnings reports damped market sentiment. Both South Korea’s Kospi index and China’s Shanghai Composite Index dropped 0.8%, while Russia’s Micex index lost 0.7%. Emerging-markets shares have increased 1.6% year-to-date, falling behind a 4.1% gain by developed-country stocks.

India raised foreign investment ceiling on local-currency bonds by $10 billion to $75 billion, in its effort to attract foreign capital inflows to finance a record high current-account deficit and prevent credit-rating downgrade. The country increased the limit on holdings of government securities to $25 billion from $20 billion and augmented the holding cap for corporate debt to $50 billion from $45 billion.

High-income Economies… HSBC/Markit composite output PMI for the Euro Zone rose to a 10-month high of 48.2 in January from 47.2 in December suggesting a modest recovery. The pace of decline in production in January was the weakest in the past ten months. Germany's composite output PMIs moved to 53.6 in January, up from 50.3 in December.
France’s PMI continued to show a steep downturn with the composite output index declining to 42.7 in January from 44.6 in December. Outside France and Germany, the average rate of decline continued to moderate for the fourth consecutive month.

Euro Zone’s current account surplus increased to EUR 14.8 billion in November from EUR 8 billion in October mainly on the account of the surplus on goods account, which rose to EUR 12.6 billion in November from EUR 10.2 billion in October.

Japan has posted a record high US$78 billion trade deficit in 2012, as exports to Europe and China continued their plunge.

First-time claims for U.S. unemployment benefits fell to a new five-year low of 330,000 and less volatile four-week moving average also dropped to 351,750. The continuing claims fell to 3.157 million in the week ended January 12th from the preceding week's 3.228 million. The four-week moving average of continuing claims slid to 3,197,500, a decrease of 12,250 from the preceding week's average of 3,209,750.

The House of Representatives approved a “No Budget, No Pay Act” bill to suspend the current $16.4 trillion debt ceiling until May 19th, when the limit will be increased by the amount accumulated during the suspension. The bill will automatically authorize an increase in the debt limit by the amount of borrowing needed by the Treasury from now until then. The bill ties the suspension of the federal debt limit to the passage of a budget plan by both the House and the Senate by April 15th.

Latvia's central bank kept its benchmark refinancing rate steady at 2.5%. Latvia's inflation rate moderated in 2012 and was 1.6% (y/y) in December. Consumer price inflation was 4.2% in 2011.

South Korea’s GDP growth slowed to 2% in 2012 from 3.6% in 2011. On a sequential basis, growth accelerated in the fourth quarter of 2012 to 1.6% annualized pace from 0.2% in the third quarter. On the expenditure side, the growth rates of exports and private consumption declined, while investment contracted. On the production side, manufacturing growth slowed sharply on lower domestic demand and exports, while services and agriculture sectors both expanded.

Spain's jobless rate increased to a record high 26% in the fourth quarter of 2012 from 25% in the third quarter with nearly six million people unemployed. The jobless rate among those under the age of 25 years jumped to a record 55% percent in the fourth quarter from 52.3% in the third quarter and is higher than 48.6% recorded in 2011.

Developing Economies… HSBC's Flash Chinese manufacturing purchasing managers index (PMI) recorded a stronger than expected reading in January, hitting a 24-month high. The index rose to 51.9 in January, from 51.5 in December suggesting that China's manufacturing sector activity rose to its highest level in two years in January on strengthening factory production. The manufacturing output index increased to a 22-month high 52.2 in January from 51.9 in December on strengthening new orders, including new export orders.

The central bank of the Philippines held its key policy rates steady. Inflation at 2.9% (y/y) in December remained moderate.

South Africa's central bank held its benchmark repurchase rate steady at 5.0% stating that a deteriorating outlook for inflation, due to the depreciation of the rand and wage pressures had limited the bank's ability to ease its policy.

The central bank revised upwards its forecast for inflation. South Africa's inflation rate rose to 5.7% in December from 5.6% in November. In 2012 inflation averaged 5.6% - close to the upper band of the central bank's 3-6% inflation target.

The IMF has reduced growth projections for developing countries in 2013 from 5.6% to 5.5% in the January update of World Economic Outlook from its October 2012 edition.

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