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Prospects Daily: Developing-country shares rebound led by China,l Putin signs laws annexing Crimea, Malaysia’s inflation at 32-month high

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Financial Markets…Developing-country stocks advanced for the first time in three days as Chinese shares rallied amid speculation the government is relaxing funding restrictions for property developers and banks in an effort to shore up economic growth. The benchmark MSCI Emerging Market Index gained 0.4% as the China’s Shanghai index jumped 2.7%, the largest gains in four months, after reaching all-time low valuations yesterday. In contrast, Russia’s Micex stock index tumbled 2.1%, the most in two weeks, as the U.S. and the European Union expanded sanctions against the country following Russia’s annexation of Crimea and rating agency Standard & Poor’s cut its credit rating outlook on Russia to negative.

China’s benchmark money-market posted the biggest weekly rise in three months as the central bank continued to withdraw funds from the banking system for a sixth week. The People’s bank of China sold 48 billion yuan ($.7.7 billion) of repurchase contracts today, adding to a total of 828 billion yuan pulled since the week-long Lunar New Year holidays in early February. The seven-day repurchase rate, a gauge of funding availability on the interbank market, jumped 101 basis points (bps) this week and 11 bps today to 3.59%.

High Income Economies…Russian President Vladimir Putin signed laws completing Russia's annexation of Crimea and its port city of Sevastopol, as investors took fright at a U.S. decision to slap sanctions on Russian lawmakers and businessmen. At the same time, Ukrainian Prime Minister Arseniy Yatsenyuk signed the political elements of a trade pact with the European Union.

Ending the Rating Watch Negative placed last October, Fitch Ratings maintained the 'AAA' ratings of the U.S. and also left unchanged the 'stable' outlook on ratings. The latest action was taken after the federal debt limit was suspended in February in a manner that did not raise uncertainty over the credit worthiness of the U.S.. Other two major rating agencies, Standard & Poor's and Moody's Investors Service, also gave 'stable' outlooks on their U.S. ratings. S&P had stripped the U.S. of its triple ‘A’ rating in 2011.

U.K. budget deficit exceeded expectations in February as expenditure increased more than revenues. Revenue increased 4.9% (y/y), while expenditure jumped 7.8%. Public sector net borrowing excluding interventions increased to GBP 9.3 billion in February compared to GBP 9.2 billion registered a year ago. Cumulative borrowing for the fiscal year, so far, came in at GBP 99.3 billion. There is only one month left for the fiscal year, which has a targeted deficit limit of GBP 108 billion.

Consumer confidence in New Zealand declined in February with the ANZ consumer confidence index falling 0.8% (m/m) to a reading of 132.0, which follows from the 2.1% decline in January to 133.0. The index for current conditions fell to 125.7 from 127.0, while the future conditions index dipped to 136.2 from 137.1.

Developing Economies…East Asia and Pacific: Malaysia’s annual headline inflation, measured by the consumer price index, increased for the sixth consecutive month to a 32-month high of 3.5% in February, up from 3.4% in January, exceeding the central bank’s target of 2-2.8% for 2014. Driving this increase, transport costs rose 5.5% (y/y), up from 5.3% in January, and costs of housing, utilities, gas and other fuel increased 3.5% from 3.2%; while food prices slowed to 3.8% from 4.2%. Month-on-month, prices rose 0.3% (m/m) in February, following a 0.6% increase in January.

Latin America and the Caribbean: Retail sales in Mexico contracted in January, falling 0.3% (y/y), following a 2.2% (y/y) increase in December. Month-on-month, retail sales fell 0.3% (m/m), slowing markedly from a 2.1% growth in December.

Brazil’s business confidence edged up slightly in March. The business confidence index rose to 52.5 in March, slightly up from 52.4 in February, beating expectations.

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