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Prospects Daily: Developing-country currencies continue to tumble, Polish unemployment rate at seven-month high, Brazil’s consumer confidence falls to lowest level since June 2009

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Financial Markets…Developing-country currencies continued to tumble on Friday, extending their worst sell-off in five years, as growing concerns over Chinese growth sparked great anxiety about the prospect of developing countries’ economies, compounded by country-specific political and financial problems. Notably, the Turkish lira plunged to a fresh record low of 2.3360 per dollar even after the country’s central bank’s intervened directly in foreign exchange markets for the first time in more than two years. Argentina’s peso extended its decline after the central bank reduced its support of the currency, allowing the peso to suffer its steepest daily drop in 12 years yesterday. Emerging-market stocks also declined, with the benchmark MSCI index sliding 2.4%, amid growing risk aversion towards developing-country assets.
 
Safe-haven government bonds advanced for a second day as investors’ risk appetite seems to be deteriorating amid rising worries over the strength of developing countries’ economies. The benchmark U.S. Treasury 10-year yield fell as much as 8 basis points (bps) to 2.7%, the lowest level since November 26, 2013. The 10-year yield is heading for a fourth weekly decline, the longest streak since April. German 10-year bund yield dropped 6 bps to 1.65%, the lowest level since August 5. There has been a shift toward risk aversion among global investors as investors mulled over the implications of the Federal Reserves’ tapering combined with some discouraging economic news coming from developing countries.
 
High Income Economies…The Conference Board leading economic index for the U.S. edged up by 0.1% (m/m) in December 2013 following an upwardly revised 1.0% increase in November.  The modest increase reflected positive contributions from the interest rate spread, the ISM new orders index, the Leading Credit Index, stock prices, and manufacturers' new orders for consumer goods and materials.  Meanwhile, negative contributions from average weekly initial jobless claims, building permits, manufacturers' new orders for non-defense capital goods excluding aircraft, and average consumer expectations for business conditions limited the upside for the index.
 
After declining in December, Belgium's business confidence index climbed from -6.4 to -5.6 in January.  Sentiment improved in the trade and manufacturing sector, but weakened in the business services sector and the building industry.
 
Poland’s unemployment rate rose from 13.2% in November to 13.4% in December, the highest since May 2013.  At the same time, retail sales increased 5.8% (y/y) in December, following November’s increase of 3.8%.
 
Developing Economies…East Asia and Pacific:  Philippines’ imports rebounded in November 2013, rising 0.5% (y/y) after decreasing 8.6% (y/y) in October. At the same time, exports accelerated, increasing 18.8% (y/y), helping to reduce the trade deficit, which narrowed to US$944 million (y/y) in November from US$1.59bn in the previous year.  Month-on-month, exports declined 14.6% (m/m) in November while imports rose 8.5% (m/m); as a result, the trade balance swung into a deficit of US$934 million after recording a surplus of US$201 million in October. 
 
Latin America and the Caribbean: Brazil’s Consumer confidence index fell for the second consecutive month in January, dropping 2.1% to 108.9 from 111.2 in December, its lowest level since June 2009 when the index was recorded at 108.7. The proportion of consumers who assessed the general economic situation as good fell to 14.2% in January from 15.6% in December; while the proportion of consumers assessing the general economic situation as bad increased to 35.7% from 33.8% in December. Households were also less optimistic about the prospects of economic recovery, with the corresponding index falling 3%.
 
Mexico’s retail sales rose in November 2013, increasing 1.9% (y/y), reversing three consecutive months of contraction.  Month-on-month, retail sales surged 3.1% in November, up from 0.8% (m/m) in October.      
 

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