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Prospects Daily: Developing-country stocks bounce back, US home prices continue to rise, China announces measures to ease cash crunch

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Financial Markets…U.S. Treasuries extended their losses in volatile trading on Tuesday, erasing earlier gains, after better-than-expected U.S. durable goods orders in May added to signs that the U.S. economic recovery is gaining momentum. The benchmark 10-year note yields fell 6 basis points to 2.48% in earlier trading, but they climbed back to 2.53%. 10-year yields climbed to 2.66% yesterday, the highest level since 2011.

Developing-country stocks bounced back from a one-year low reached yesterday on Tuesday as Turkish shares led gains. The benchmark MSIC Emerging Market Index rose 0.5%, ending a five-day decline and trimming quarter-to-date loss to 14%. Turkey’s main stock index gained 2.5%, snapping a three-day drop, while Russias’ Micex Index advanced 0.9%, adding to yesterday’s gain of 2.2%. In contrast, Chinese shares continued to slump, with the benchmark Shanghai Composite Index slide 0.2%, as investors remained worried about a cash crunch for the country’s banks.

High-income Economies…Growth of US durable goods orders excluding transportation slowed to an annualized 1.9% pace in the three months ending in May (3m/3m saar) from 4.7% in April.  However, orders for non-defense capital goods excluding aircraft—a proxy for future business investment—rose at a faster pace, by an annualized 7.6% in the three months to May (3m/3m saar), compared to a 5.1% increase the previous month, suggesting increased optimism among firms.

The S&P/Case-Shiller index of US home prices rose 12.1% (y/y) in May, the largest year-on-year gain in more than 7 years, following a 10.9% (y/y) increase the previous month. The housing market recovery has been buoyed by low mortgage rates and an improving labor market. On a monthly basis, seasonally adjusted home prices rose 1.7% (m/m) in May, building on a 1.9% gain in April.

Hungary’s central bank cut its policy interest rate by 25 basis points to a record low of 4.25%, following a similar cut in May. This marks the 11th consecutive quarter-point rate cut in as many months (a cumulative 275 basis point reduction), as the country’s central bank continues its attempts to support growth amid low inflation of 1.8% (y/y) in May. 

Poland’s retail sales rose 0.5% (y/y) in May following a 0.2% decline the previous month. The unemployment rate fell to 13.5% from 14%. 

Developing EconomiesEast Asia and Pacific: China’s central bank has announced that it would guide interest rates down to ease a cash crunch and has provided unspecified amounts of liquidity to stabilize the money market rates. Interbank rates spiked to double digits, but he overnight bond repurchase rate had fallen to 5.83%, more than half what they were last week, though still about twice as high as normal.

Europe and Central Asia: Arrival of foreign visitors into Turkey’s tourist destinations increased in May by 18% (y/y), a faster pace than April’s 13% (y/y) increase. For the first five months combined, tourist arrivals are 18% higher than in the same period a year earlier.

Sub-Saharan Africa: South Africa's leading business cycle indicator increased 0.2 percent (m/m) in April, after easing a month ago, underpinned by a rise in building approvals and acceleration in job ads.

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