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Prospects Daily: Equities are up and yields are down as US jobs report disappoints, Mexico lowers interest rates

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Financial Markets…Equities are firmer and benchmark borrowing costs are pulling back sharply from two-year highs after a disappointing US jobs report reduces expectations for a shift in Federal Reserve policy. Wall Street’s S&P 500 is up 6 points to 1,660, while the dollar index is down 0.4%, helping to push gold up $15 to $1,382 an ounce. Europe’s Stoxx 600 equity index is up 0.5%, helping the FTSE All-World gain 0.5%.

High Income Economies: U.S. employers added 169,000 jobs in August, led by new jobs in the retail trade and health care industries. The unemployment rate ticked down from 7.4% in July to 7.3%, the lowest since December 2008.  However, this in part reflects a fall in the labor force participation rate from 63.4% to 63.2%, its lowest level since 1978.  There was also a significant downward revision to job growth in July, to an addition of 104,000 jobs from the previously reported increase of 162,000 jobs.  Separately, core capital orders, an indicator of future business investment, rose by 10.1% (3m/3m saar) in July, up from 7.6% in June.

German industrial output fell 1.7 (m/m sa) in July, compared to a strong 2.0% (m/m sa) increase in June. This reflected a 2.1% (m/m sa) fall in manufacturing output due to a sharp fall in the production of capital goods (3.4% m/m sa). As a result, overall growth momentum for industrial output in July was sharply reduced to 1.3% (3m/3m saar) down from 5.4% the previous month.

Greek GDP fell by 3.8% (y/y nsa) in the second quarter, down from the 5.6% (y/y nsa) reduction in the first quarter.  The drop is the 20th successive quarter of contraction, but the mildest in three years due to a boom in the tourism industry.

Developing EconomiesEast Asia and Pacific: Malaysia’s export growth picked in July to 4.5% (y/y), up from -6.9% (y/y) in June, boosted by increased shipments of mining and manufactured goods. However, despite imports rising at an even faster pace, 6.2% (y/y), up from 1.3% in June, the trade surplus narrowed to US$861.7mn down from US$1.86bn in the previous month.

Latin America and the Caribbean:  Brazil’s consumer price inflation eased markedly in August, weakening to 6.09% (y/y) from 6.27% (y/y) in July.  Nonetheless, inflation remains well above the central bank’s target of 4.5% for 2013. Owing to rising costs of housing, textile and clothing the consumer price index recorded an increase of 0.24% (m/m) in August, up from 0.03% (m/m) in July.

Mexico’s central bank lowered its benchmark rate by 25 basis points to 3.75%, the lowest level since the key rate was introduced in early 2008, as it expects inflation to keep cooling in the coming months while risks to growth had deepened significantly as the economy contracted for the first time in four years in the second quarter.

Sub-Saharan Africa: South Africa’s international liquidity position improved in August, with net reserves rising to US$45.59 bn from US$45.18 bn.  Gross reserves stood at US$47.95 bn up from US$47.31 bn.

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