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Prospects Daily: Emerging market equities slide the most in a week amid global growth concern

Global Macroeconomics Team's picture

Important developments today:

1. Emerging market equities slide the most in a week amid global growth concern

2. US labor market sustains positive momentum

Emerging market equities slide the most in a week amid global growth concern. Developing-country stocks fell for a second day, sending a benchmark index down the most in a week, on concerns about global economic growth fueled by rising oil prices and reports signaling slowing growth in the eurozone economies, prompting fresh worries about the long-term feasibility of Greece’s debt restructuring. The benchmark MSCI Emerging Market Index declined 0.4%, gearing for the largest decline since February 16th, with Asian shares leading the decline. The gauge has gained 16% thus far this year, largely outperforming developed-market counterpart which has risen about 9%. Global equities have rallied since December after the European Central Bank injected liquidity into the market with its longer-term refinancing operations, which had resulted in 523 European banks borrowing €489 billion—the ECB will start the second round of 3-year LTOR next week. Meanwhile, the risk premium investors demand to own emerging-market bonds over U.S. Treasuries remained unchanged at 365 basis points, according to JPMorgan Chase & Co. EMBI Global index.

US labor market sustains positive momentum. The US labor market continues to show signs of a durable recovery as lesser workers are being fired. The number of US workers claiming first time weekly unemployment insurance was sustained at its near four-year low of 351,000 for the second week in a row. The closely watched four-week moving average, which gives better idea of trends by removing weekly volatilities, fell by 7,000 to 359,000 a four-year low. Sustained improvement to the employment situation in the US should bode well for consumer spending (which accounts for some 70% of the US economy) and the beleaguered housing market. In Q4 2011, as the unemployment rate fell by 0.4 percentage points, consumer spending added 1.5 percentage points to US GDP growth and residential investment added another 0.2 to that quarter’s GDP growth of 2.8%.

Among Emerging Markets

In Europe and Central Asia, Lithuania’s unemployment rate fell from 14.8% in the third quarter of 2011 to 13.9% in the final quarter, reflecting strengthening of domestic demand and a broad based recovery.

In Latin America and the Caribbean, Brazil’s current account deficit rose to $7.1 billion in January from $6 billion in December according to the central bank, driven in part by the more than 9% appreciation of the real against the US dollar this year.  
In Sub-Saharan Africa, Nigeria's consumer inflation rate accelerated to 12.6% (y/y) from 10.3% in December, mostly due to the partial removal of fuel subsidies as businesses passed on the rise in fuel costs to consumers. Zambia's inflation slowed to its lowest rate in at least 10 years this month to 6.0% (y/y) from 6.4 percent in January mainly because of slower rise in food prices from last year’s bumper maize crop, although erratic rains have delayed planting of the crop this year.

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