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Prospects Daily: Euro Area and US manufacturing PMIs rise in January, inflation eases in Thailand and Peru, but accelerates in Indonesia

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Financial Markets…The yen depreciated to its weakest level since June 2010 versus the dollar, sliding to 92.30 per dollar in earlier trading, as a report showed the Japan’s unemployment rate climbed and household spending declined. Japan’s currency also fell 1% to 125.74 per euro, after being as low as 126.16, the weakest level since April 2010.

Japan’s Nikkei 225 Stock Average rose 0.5% to a 33-month high level on Friday as a weak yen and strong corporate earnings reports boosted investor sentiment. The Nikkei index gained 2.4% this week, giving it the longest weekly winning streak since 1959 (a 12-week advance). The gauge has rallied 29% since mid-November.

Companies from the U.S. to Europe and Asia sold $412.3 billion of bonds in January, the most ever for the month, as borrowers seek to lock in near record-low borrowing costs. January debt sales are up from $226 billion in December and surpass the previous high of $407.2 billion reached in January 2009. Sales of global corporate bonds surged 20.5% to a record high of $3.96 trillion in 2012.

High-income EconomiesUS non-farm employment growth slowed to 157,000 in January from an upwardly revised 196,000 in December and 247,000 in November. The revisions added 127,000 jobs in November and December, indicating strong employment gains in the fourth quarter led by the construction sector, despite shrinking government payrolls. The unemployment rate, however, edged up to 7.9% in January from 7.8% the previous month.

US consumer confidence improved in January, with the Thomson Reuters/University of Michigan's consumer sentiment index rising to 73.8 from 72.9 in December, after a deal was reached to avert the "fiscal cliff" at the beginning of the year.

The ISM manufacturing Purchasing Managers' Index (PMI) for the US rose 2.9 percentage points to 53.1 percent in January, indicating that US manufacturing grew at a significantly faster pace (An index level above 50 indicates expansion). The new orders sub-index rose by 3.6 percentage points to 53.3 percent. 

Euro Area inflation moderated to 2.0% in January from 2.2% in December, according to preliminary estimates, reflecting a slower pace of increase in energy prices and weak domestic demand amid broadly flat or declining output and high unemployment in several countries. The Euro Area unemployment rate remained stable at 11.7% in December compared with November.

Japan’s unemployment rate edged up to 4.2% in December from 4.1% in November. Monthly consumption expenditures per household for December was down 0.7% (y/y), following a 0.2% increase in November.

Markit's manufacturing PMI for the Euro Area rose to an 11-month high of 47.9 in January from 46.1 in December, suggesting that the pace of contraction in Eurozone manufacturing activity may be easing.

Manufacturing PMI for Germany rose sharply to 49.8 in January, close to the 50-mark dividing contraction from expansion, from 46.0 in December. PMIs also improved in Italy (to a 10-month high of 47.8 from 46.7) and Spain (to 46.1 from 44.6).

But PMI for France fell to a 4-month low of 42.9 from 44.6 in December, as output, new orders, employment and stocks of purchases all contracted at accelerated rates.    

Manufacturing PMI for the UK fell 50.8 from 51.2 in December, indicating continued expansion but at a slower pace. This mainly reflected a robust increase in consumer goods production, offset by falling investment goods output.

The HSBC-Markit manufacturing PMI for South Korea edged down below the 50-mark to 49.9 from 50.1 indicating a modest fall in manufacturing output as weaker domestic orders offset an increase in export orders. 

South Korea's exports rose 11.3% (y/y) in January, the most in 11 months, while imports grew 3.9%. South Korea's consumer price inflation edged up to 1.5% (y/y) in January from 1.4% in December, remaining well below the central bank's 2.5%-3.5% target range. On a month-on-month basis, consumer prices rose 0.6% (m/m).  
 
The HSBC-Markit PMI for the Czech Republic rose to 48.3 from a 41-month low of 46.0 in December, indicating a moderation in the pace of decline in manufacturing, as new export business with European markets fell at a weaker pace.
 
Developing EconomiesBrazil's industrial production declined 3.6% (y/y) in December driven by 14.7% fall in production of capital goods. On a monthly basis, industrial production remained unchanged in December after decreasing 1.3% in November. For the whole of 2012, industrial production decreased 2.7% (y/y).

Meanwhile, Brazil’s Markit/ HSBC manufacturing sector PMI increased to 53.2 in January from 51.1 in December, indicating a stronger performance of manufacturing industry at the start of the year.

China's official and Markit/HSBC PMIs both indicate a continued expansion of manufacturing sector, however the signals on the pace of expansion differ. The official PMI, which weakened to 50.4 in January from 50.6 in December, indicated a modest slowdown in manufacturing activity. Markit/HSBC PMI on the other hand indicated that Chinese manufacturing activity expanded at the fastest pace in two years in January, with the headline PMI rising to 52.3 in January from 51.5 in December.

Indonesia experienced a sharp 1.03% monthly increase in consumer price inflation as heavy floods pushed food prices up. On an annual basis, inflation accelerated to 4.57% (y/y) in January from 4.3% in December. Core inflation, however, eased to 4.3% (y/y) in January from 4.4% in December.

Indonesia's trade deficit declined to US$0.15billion in December from US$478billion million in November on slowing imports and weak exports. In December, Indonesia's exports declined by 9.8% on an annual basis and by 5.6% on a monthly basis and imports fell by 5.6% (y/y) and by 8.1% (m/m). For 2012 as a whole, Indonesia recorded a trade deficit of US$1.63 billion, as its commodity-led exports were hit by the global slowdown, while imports accelerated. Total exports in 2012 fell 6.6% (y/y) to $190.04 billion, while imports rose 8.0% (y/y) to $191.67 billion.

Peru’s
CPI inflation eased to 2.65% (y/y) in January from 2.87% in December.

Thailand also saw its consumer price inflation moderating to 3.39% (y/y) in January from 3.63% in December with a 1.59% increase in core CPI, significantly below the central bank's 0.5%-3.0%.targeted range.

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