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Prospects Daily: Developing-country stocks fall on China, Czech Republic economic sentiment improves for third month, China’s flash Manufacturing Purchasing Managers’ Index rises to a seven-month high

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Financial Markets… Italian government bonds retreated on Thursday as the government report showed the nation’s consumer confidence index fell to the lowest level since June, damping investors’ risk appetite on high-yielding bonds. The benchmark Italy’s 10-year yield widened 4 basis points to 4.16% after dropping to as low as 4.09%, the lowest rate since June 5. Italy’s government securities have gained 6.5% thus far this year, while Spanish bonds have returned 10%.

Developing-country stocks declined for a second day as a jump in China’s money-market rate overshadowed signs of a pickup in the world’s second largest economy. China’s Shanghai Composite Index fell 0.9% to the lowest level since September 27 after the nation’s central bank continued to refrain from a further liquidity injection in open-market operations, which pushed the 7-day repurchase rate higher by 65 basis points to 4.67%, the steepest increase in two months. Notably, emerging-market equities have declined 2.2% this year, contrasted to a 20% gain for developed-market shares.

High Income Economies…U.S. first-time jobless claims for unemployment benefits fell less than expected by 12,000 to 350,000 in the week ended October 19th.  The 4-week moving average was 348,250, an increase of 10,750 from the previous week's revised average of 337,500.

Spain’s unemployment rate fell for the second consecutive quarter to 26.0% in Q3 from 26.3 in Q2, which is the sharpest quarterly decline for the last 5 years.  The number of unemployed in Spain stood at 5.90 million persons, from 5.98 million in Q2.  The fall in the unemployment rate was largely attributed to a substantial increase in employment in the services sector (+123,900), but was partially offset by employment declines in agriculture (-55,000), industry (-19,700) and construction (-9,700).

With the value of imports and exports showing little change, the U.S. trade deficit widened only slightly to $38.8 billion in August from a revised $38.6 billion in July.  The value of imports was virtually unchanged at $228.0 billion, while the value of exports edged down to $189.2 billion from $189.3 billion.

Economic sentiment in the Czech Republic improved for the third consecutive month in October.  The economic sentiment indicator rose to 2.9 from 1.2 in September. All components except trade improved. The business confidence indicator also rose to 7 from 5.1, and the consumer confidence index climbed to -13.5 from -14.3.  Households were less pessimistic regarding future economic prospects, but were more concerned about an increase in unemployment rose, relative to September.
Stronger dairy exports helped New Zealand narrow its trade deficit NZ$199m for September, which comprised of NZ$3.83bn of exports and NZ$4.03bn of imports. The country's overall trade balance for the year to September was a deficit of $1.54bn.

Developing Economies…East Asia and Pacific: The Monetary Board of the Philippines’s central bank decided on its October meeting to keep its benchmark policy rate unchanged at 3.5%, on the assessment that inflation remains stable while domestic economic activity is gaining steam.  The rate on special deposit accounts was also kept unchanged at 2%.

China’s flash Manufacturing Purchasing Managers Index (PMI) rose to a 7-month high in October boosted by a rapid increase in new orders. The Markit/HSBC manufacturing PMI was recorded at 50.9 in October, higher than the September final figure of 50.2; and the flash manufacturing output index stood at 51.0, above the September’s final reading of 50.2, representing a 6-month high.

Meanwhile, debt write-offs by China’s largest banks tripled from their level last year. In the first half of 2013, Industrial & Commercial Bank of China Ltd., the World most profitable bank, and other large banks have written off their books 22.1bn yuan (US$3.65bn) of bad loans up from 7.65bn yuan, a move that could help mitigate the rise in non-performing long ratios.

Latin America and the Caribbean: Brazil’s unemployment rate increased to 5.4% in September, up from 5.3% in August; year-on-year, the unemployment rate was the same as the previous year.  Average wages rose, increasing 1% (m/m) and 2.2% (y/y). The number of employed and unemployed people, recorded at 1.3 million and 23.2 million respectively, was stable.

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