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Prospects Daily: ​Dollar eases, U.S. to reach debt ceiling by Oct. 17, Brazil’s producer price inflation accelerates

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Financial Markets…The dollar eased 0.2% against a basket of six major currencies to 80.563 (the DXY index) as concerns over a potential U.S. government shutdown and mixed signals on the Federal Reserve’s monetary policy weighted on investor’s sentiment. The euro advanced 0.25% versus the dollar to $1.3509, supported by signs of economic strength in the Euro-zone area. The greenback fell 0.2% versus the Japanese currency to 98.5 yen, while it rose against the Australian dollar and the New Zealand dollar. Notably, the Brazilian real has appreciated 7.5% versus the dollar thus far September, while the Japanese yen has depreciated 0.6%.

Asian borrowers excluding Japan issued $9.9 billion of U.S. dollar-denominated bonds thus far this month, already the strongest month since May, when $17.6 billion was sold. The region’s borrowers are returning to the international bond market following the slowest August since 2011amid the Fed’s inspired market rally. Even before the Fed’s surprising restraint from slowing its stimulus program, many borrowers came to the market to raise as much as possible before the Fed’s expected tapering. And the Fed’s unexpected decision has fueled risk-on sentiment, signaling a huge rally and paved the way for a surge in the region’s bond issuance. The region’s issuers sold $93.1 billion of dollar bonds this year compared to $84.1 billion in the like period of 2012.

High Income Economies…Treasury Secretary Jack Lew announced that unless it is raised, the U.S. would reach its $16.7 trillion debt ceiling and exhaust its borrowing capacity by October 17.  At that point the U.S. would have only about $30 billion in cash on hand, below the $60 billion in outlays it pays on some days, potentially leading to the first default by the U.S. on its debt obligations.

U.S. durable goods orders increased 0.1% (m/m sa) in August after shrinking 8.1% in July, which was largely due to increase in orders for transportation equipment – a 0.7% (m/m sa) increase after a 21.9% decrease in July.  When excluding transportation equipment, orders for durable goods actually fell by 0.1% (m/m sa) in August, after a 0.5% drop in July, reflecting a decrease in orders for computers and electronic products (3.4% m/m sa), and primary metals (0.5%).  On a three-monthly annualized basis, new orders with and without transportation equipment grew at 12.7% (3m/3m saar) and 4.9% respectively in August, compared to increases of 24.1% and 7.6% in July.

Meanwhile, U.S. new home sales rose 7.9% in August to an annualised pace of 421,000 units, up from July’s decline of 14.1% at 390,000 units, which was a nine-month low.

In tune with the Abenomics-induced upswing, Japan’s small business sentiment, as measured by the Shoko Chukin Bank, rose from 49.7 in August to 49.8 in September, which is its highest level since early 2007.  The sub-index for the manufacturing sector increased to 50.4 from 48.4 in August, while that for the non-manufacturing sector advanced to 50.9 from 50.7.

Confidence among Italian households increased in September, with the headline consumer confidence index growing to 101.1 from 98.4 in August.  Respondents' assessment of the current economic situation and their personal finances turned more upbeat, while future expectations for the economy were a little more bleak.

Developing Economies… East Asia and Pacific: Philippines’ trade deficit widened in July to US$649 million (y/y) from US$320 million in the same month last year as imports accelerated, rising 8.7% (y/y) in July following a 4.8 decline (y/y) in June and as exports posted a moderate growth of 2.3% (y/y).  Month-on-month, imports rose by 12.9% in July, following a decline of 7.6% in June.

Latin America and the Caribbean: Producer price inflation in Brazil’s manufacturing sector increased markedly in August, at 5.9% (y/y), on top of the previous month’s 4.9% increase, driven by sharp increases in the prices of chemical products and costs of pulp paper which rose 13.8% (y/y) and 11.9% (y/y), respectively. For the eight-month period ending in August, manufacturing producer prices rose 4.3% (y/y) from the same period the preceding year. 

Sub-Saharan Africa: South Africa’s leading index rose 1.5% (y/y) in July, up from June’s 1.8% gain.  The composite leading business cycle indicator moved up 0.2% (m/m) in July, with six of the eleven components of the index rising, reflecting major contributions from the percentage change in job advertisement space and the average hours worked per factory worker in the manufacturing sector.

Separately, South Africa’s consumer confidence index fell 8 points in the three months to September, sharply reversing August's 1 point gain.  This decline moved the index to its lowest level in 10 years as consumers’ outlook for the national economy turned unfavorable. 

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