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Prospects Daily: Chinese stocks advance as growth picks up… US retail sales growth improves

Financial MarketsEuropean stocks advanced on Monday amid better-than-expected Chinese economic growth, extending gains after the biggest weekly rally in 2 months. But European shares trimmed their gains in afternoon trading after U.S. retail sales increased less than previously reported in June. The benchmark Stoxx Europe 600 Index rose 0.3%, after earlier climbing as much as 0.7%. The index surged 2.7% last week in the wake of Federal Reserve Chairman Bernanke reassured the market that the U.S. central bank will maintain its stimulus program for some time.

Chinese stocks extended their gains today, with the benchmark Shanghai Composite Index rising 1% to add to last week’s gain of 1.6%, as the country’s economic growth was in line with consensus forecasts and the government increased investment quotas for foreign investors. China’s better-than-expected GDP data in the second quarter somewhat eased worries that the country’s is sliding inevitably into recession. The China Securities Regulatory Commission last week increased limits for “Qualified Foreign Institutional Investors” to $150 billion from $80 billion.

Indonesian rupiah depreciated beyond 10,000 against the dollar for the first time in nearly 4 years, on dollar demand from local companies. The rupiah has been weak as the outlook for the country’s exports and the current-account deficit has been lowered amid slowing economic growth in China. China has been the leading destination for shipments from Indonesia. The rupiah dropped 0.3% to 10, 023 per dollar in Monday afternoon trading, the weakest level since early September 2009.

High Income EconomiesUS retail sales growth picked up momentum slightly in June, with sales rising by 0.6% (m/m sa) , and the overall pace accelerating to 3.4% (3m/3m saar) from 2.9% in May, led by a strong jump in auto sales. Meanwhile, the New York Federal Reserve Bank’s index of regional manufacturing activity rising to 9.5 in July from 7.8 in June, with a positive reading indicating an increase in activity.

Fitch became the third and final major credit rating agency to downgrade France to AA+ arguing that the French debt burden no longer consistent with a top-rated country. Standard & Poor's and Moody's had already downgraded France last year from the AAA club.
On Friday, S&P upgraded its outlook on Ireland's credit rating from stable to positive on a view that the Irish government may beat its fiscal targets and cut its debt faster than expected.

Developing Economies…East Asia and Pacific: China’s GDP growth picked up in 2013Q2 to 7% (q/q saar), up from 6.6% (q/q saar) in the first three months of the year. However, the growth remains below both last year’s (7.9%) and below the official target of 7.5%.

Separately, retail sales staged a small rebound, climbing to 13.3% (y/y) in June, up from 12.8% (y/y) in May, though they remained well below last year’s pace for the first half as a whole. Industrial output edged down to 8.9% (y/y) in June (9.3% y/y in May) while fixed-asset investment slowed to 19.2% (20.1% y/y May). Exports fell in June for the first time in more than a year.

Middle East and North Africa: Egypt’s inflation accelerated to 9.8% (y/y) rate in June, up from 8.2% in May, and the fastest pace of inflation seen since mid-2011. Food prices spiked 12.6% y/y – the sharpest jump seen since December 2011. Core inflation – excluding certain regulated items as well as fruits and vegetables – rose 8.5% y/y in June, the fastest rate seen since March 2012.

South Asia: India’s wholesale inflation accelerated to 4.8% (y/y) this June, up from 4.7% in May but below the 7.6% (y/y) inflation recorded in June last year. Having fallen gradually over the past nine month, inflation ticked up in June on the account of higher food price inflation (9.7% y/y) along with fuel and power prices (7.1% y/y).

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