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Prospects Daily: Developing-country stocks in steep drop over renewed worries about Federal Reserve’s tapering, U.S. PMI at 8-month high, China’s Flash Manufacturing Purchasing Managers’ Index moderates

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Financial Markets…Developing-country stocks headed for the steepest drop since August as renewed worries over Fed tapering and weaker-than-expected China’s manufacturing data rattled investors. The benchmark MSCI stock index fell 1.5%, set for it’s biggest slump in three months, with India’s Sensex and Russia’s RTS index sliding 2% and 1.4%, respectively. Benchmark stock indexes in Brazil, Thailand, and Turkey also declined at least 0.8%. MSCI developing-country gauge has declined 2% since Tuesday to extend this year’s loss to 4.8%, compared to a 20% gain for the MSCI developed-market stock index.

The yen weakened against the dollar to the lowest level in four months after the Federal Reserve meeting minutes signaled near-future reduction in its stimulus program and the Bank of Japan keeping its pledge to maintain ultra-loose monetary policy at today’s policy meeting. Japan’s currency slid to as low as 101.01 per dollar in earlier trading, the lowest level since July 10, while the yen fell 1.1% versus the euro to 135.92 after deprecating to a four-year low of 135.95 yesterday. Japanese yen fell against all but one of its 16 major counterparts.

Gold came under a strong selling pressure amid the prospect of Fed tapering with recent economic data pointing to weak global growth outside the U.S. Gold futures for December delivery tumbled 1.3% to $1,241.10 an ounce in New York trading, after dropping to a four-month low of $1,237.50 earlier. Meanwhile, silver futures for March settlement fell 1.3% to $19.945 an ounce, after sliding to $19.80 earlier, the lowest level since August 8.

High Income Economies…U.S. first time jobless claims in the week ended November 16th fell more-than-expected to 323,000, a decrease of 21,000 from the previous week's revised figure of 344,000. The four-week moving average fell to 338,500, a decrease of 6,750 from the previous week's revised average of 345,250. Meanwhile, continuing claims, a reading on the number of people receiving ongoing unemployment assistance, rose to 2.876 million in the week ended November 9th from the preceding week's revised level of 2.810 million.

Driven by stronger increases in both output and new orders plus a modest rise in employment, the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) rose to 54.3, an eight-month high in November. This was up from a one-year low of 51.8 in October. Meanwhile, the three-month average of the PMI, which gives an indication of the underlying trend, was at 52.9, consistent with an ongoing modest improvement in manufacturing business conditions.

At 51.5, down from 51.9 in October, the flash estimate of the Markit Eurozone PMI Composite Output Index remained above the 50.0 no-change level for a fifth successive month in November, but signaled a modest easing in the rate of expansion for the second month running. Manufacturing output growth stabilized at a robust rate and remained stronger than service sector expansion, which eased to the weakest since August.

Providing new evidence of a broadening and deepening recovery in the U.K. manufacturing sector, the November CBI Industrial Trends Survey of nearly 350 manufacturers found that new factory orders rose to +11 from -4 in October, their highest level in more than 18 years.

Developing Economies…East Asia and pacific: China’s HSBC Flash Manufacturing Purchasing Managers’ Index moderated to 50.4 in November from 50.9 in October. While remaining above the 50 no-change mark, the November flash PMI reading suggests that China’s manufacturing rebound is losing some momentum. Contributing to the slowdown, the sub-index measuring new export orders fell to a three-month low of 49.4 in November from 51.3 in October. In addition, stocks of purchases decreased, stocks of finished goods contracted; and employment and output prices declined.

Latin America and the Caribbean: Brazil’s unemployment rate declined to a 10-month low of 5.2% in October following an increase to 5.4% in September, as employment rose 3.9% in the retail sector while reaming stable in other sectors. The October reading represents the lowest unemployment rate since December 2012, when the rate stood at 4.6%. In October 2012, the unemployment rate was 5.3%.

Mexico’s GDP grew at the annualized pace of 1.3% (y/y) in the third quarter, down from 1.6% (y/y) in the previous quarter due to a slowdown in agricultural production. Contributing further to the GDP growth slowdown, the secondary sector contracted by 0.6% (y/y) down from a 0.3% (y/y) drop in the second quarter, as construction and mining shrank by 6.9% (y/y) and 1.8% (y/y) respectively; while manufacturing rose 2.9% (y/y) and electricity, water and gas production increased 0.9% (y/y). The tertiary sector also slowed, expanding by 2.3% (y/y) from 2.6% in the previous quarter. Quarter-on-quarter, the Mexican economy grew at the seasonally adjusted pace of 0.8% in the third quarter, up from a contraction of 0.5% in the previous quarter, owing to an expansion in manufacturing and services.

Sub-Saharan Africa: South Africa’s central bank decided at its November meeting to keep the benchmark repurchase rate unchanged at 5%, citing elevated upside risks to the inflation outlook, including from uncertainties about the timing and speed of the Federal Reserve’s tapering of its bond purchase program and the depreciation of the rand, and a still fragile economic growth outlook. In October, South Africa’s headline inflation slowed to 5.5%, falling within the central bank’s inflation target range of 3-6% for 2013.

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