Important developments today:
1. Two year U.S treasury notes reach record lows
2. U.S. housing starts jump in August
Two year U.S treasury notes reach record lows. In early trading today, U.S. treasury prices rose on speculation that the Federal Open Market Committee (FOMC), which meets later today, will increase purchases of U.S. debt if economic growth slows. The yield on the two-year note fell by 1 basis point to 0.46% after touching an all-time low of 0.4479%. The ten-year note has dropped for three consecutive days and is trading at 2.67%.
The ten-year notes have been rising since August 10 when the FOMC announced at its meeting that it would keep its bond holdings level by using proceeds of principal repayments to purchase U.S. debt to support the recovery. The Fed has bought $28.1bn of treasuries since August 17 using these principal repayments, hence keeping holdings in its System Open Market account at about $2 trillion.
U.S. housing starts jump in August. U.S Housing starts rose by 10.5% (m/m) to an annualized rate of 598,000 in August. Housing starts had risen to 679,000 in April, its highest level since the beginning of the crisis [see Chart at http://gem  or http://www.worldbank.org/gem ]. However after the expiration of the government tax breaks for new and existing home buyers in April, housing starts tumbled to a low of 539,000 in June and barely increasing in July. The August increase is welcome news to the housing market and may well suggest that the bottom might have been reached in this post-government tax incentive phase. This is also consistent with figures released yesterday showing that the U.S housing market index, a measure of builder confidence, has stabilized at 13 after tumbling from its peak of 22 in May 2010. However, with a sluggish jobs market, tight consumer credit conditions and mounting foreclosures that swell the supply of houses, recovery in housing starts will continue to remain a challenge.
Source: World Bank DEC Prospects Group and Thomson Reuters.
Among emerging markets:
In Latin America and Caribbean, Brazil, Latin America’s largest economy, current account deficit widened from 2.24% of GDP in the year through July to 2.32% in the year through August. The widening of the deficit is occurring at a time where the real is appreciating strongly on account of strong inflows of foreign investment. In August, Brazil attracted $2.328 billion worth of foreign direct investment.
Elsewhere in Latin America and the Carribean… Retail sales in Mexico fell slightly in July by 0.01%. The Mexican economy, which is tied to that of the U.S via strong trade and financial links, is recovering from one of the deepest contractions experienced. The moderation of growth in the U.S. as well as in Europe in H2 2010 will remain a check on Mexican economy’s recovery prospects.
In Sub-Saharan Africa, Nigeria, the second biggest economy in sub-Saharan Africa, the central bank raised the bench mark interest rate to 6.25% from 6%. Inflation increased to 13.7% in August (y/y) from 13% the previous month. The central bank projects the Nigerian economy to expand by 7.78% in 2010.