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Prospects Daily: China’s holdings of U.S. government debt continue to drop, U.S. industrial production increases more-than-expected, India’s wholesale price inflation accelerates in May

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Financial Markets

China’s holdings of U.S. Treasury debt fell for a third straight month in April while other major holders increased their exposures. China, the biggest foreign purchaser of U.S. government securities, cut back its holdings by 0.7% from the previous month to $1.26 trillion. In contrast, Japan, the second largest holder, increased its holdings by 0.8% to $1.21 trillion. Russia, which has been reducing its holdings of U.S. Treasury securities for five consecutive months as of March, also boosted them by about 16% in April to $116.4 billion, but they still remain below the recent high of $149.9 billion reached in October.

Kenya sets to issue its first international bonds today, despite growing security concern in the wake of yesterday’s terrorist attack. The country plans to sell a 5-year Eurobond at a yield in the low 6% range and a 10-year bond in the low 7% area. Kenya is expected to use the proceeds from new bond sales to finance infrastructure projects and repayments of a $600 million loan that is due in coming August.

High Income Economies

Following a revised 0.3% decrease in April, U.S. industrial production increased 0.6% (m/m) in May, which was more-than-expected as economists had forecast production to climb by about 0.5% compared to the 0.6% drop originally reported for April. The increase partly reflected the rebound in manufacturing output, which rose by 0.6% in May after declining 0.1% in April. The jump in manufacturing output was led by motor vehicles and parts, machinery, and computers and electronic products. Mining output also showed a strong increased, while utilities output dipped.

Russia's central bank left its key interest rate unchanged at 7.50% per annum, but warned that rates may be hiked if risks to inflation materialize. The bank has raised the rate by a cumulative 200 basis points since February.

According to the New Zealand Institute of Economic Research, the consensus forecast for New Zealand remains optimistic with GDP growth forecast to accelerate from 3.1% for 2014 to 3.8% for 2015, and moderating to 2.8% and 2.1% in 2016 and 2017, respectively. Broad based growth across household spending, investment and exports underpins the forecast.

Developing Economies

Europe and Central Asia

After rising for two consecutive months, Turkey’s unemployment rate fell to 9.7% in March from 10.2% in February, the lowest in five months. The number of unemployed persons stood at 2.7 million. The non-agricultural unemployment rate was estimated at 11.6%; and youth unemployment rate, covering the 15-24 age group, was recorded at 16.7%.

South Asia

India’s annual wholesale price inflation rose more than expected in May, accelerating to 6.0% up from 5.2% in April, due to higher food and fuel prices. Food prices rose 9.5% (y/y) in May, following an 8.6% increase in April; while fuel and power prices rose 10.5%, after increasing by 8.9% in April. Meanwhile prices of manufactured products increased 3.5% in May, up from 3.1% in April. Month-on-month, wholesale price inflation increased 0.8% in May, after falling marginally in April.

Sub-Saharan Africa

Nigeria’s annual consumer price inflation rose for the third consecutive month in May, edging up to 8.0% from 7.9% in April, driven by higher food prices, which accelerated to 9.7% from 9.4% in April. The central bank’s inflation target range for 2014 is 6%-9%. Core inflation, which excludes volatile food and energy prices, rose to 7.7% (y/y) up from 7.5% (y/y) in April. Month-on-month, consumer price inflation accelerated to 0.8% from 0.6% in April.

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