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Prospects Daily: Global equities and the dollar move higher amid upbeat U.S. data, U.S. existing home sales disappoint, Mexico’s GDP growth slows in Q4

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Financial Markets…Global stocks and the dollar advanced on Friday, buoyed by positive U.S. factory data the previous day. The Ukrainian government’s effort to end a political crisis also helped market sentiment. The benchmark MSCI world stock index gained 0.3%, gearing for a six-year high that reached last December. Market valuations for global shares have increased by $1.8 trillion thus far February amid growing speculation that the global economy is strong enough to withstand the normalization of monetary policy in high-income countries. The dollar strengthened 0.4% against the yen to 102.68, extending this week’s appreciation to 0.9%, the biggest gain since late December. Meanwhile, the greenback was little changed versus the euro at $1.3710.

Ukraine’s financial markets rallied the most since Russian government pledged a financial aid two months ago as Ukrainian protesters agreed to President Viktor Yanukovych’s offer to hold early presidential elections by December. The yield on government bonds due on 2023 dropped 77 basis points to 10.33%, the steepest retreat since December 17th, after reaching a record high of 11.42% two days ago. The nation’s benchmark equity index rose 2.6%, erasing earlier losses. Meanwhile, the rating Agency S&P downgraded the nation’s sovereign credit rating for the second time this year, lowering by one notch to ‘CCC’. The rating agency also warned that the country is likely to default in the “absence of significantly favorable changes in circumstances, which we do not anticipate.”

High Income Economies…U.S. existing home sale plunged 5.1% (m/m) to an annual rate of 4.62 million in January, following a 0.8% increase in December. While the larger-than-expected decrease follows a severe winter across the country, sales were also dampened because home buyers were constrained by tight credit, limited inventory, higher prices and higher mortgage interest rates.

According to its "Going For Growth" study, the OECD warns that while signs of a broad-based global recovery are becoming more tangible, advanced and emerging economies now face the risk of falling into a low-growth trap. The report argues that comprehensive structural reforms are required to bring the global economy back to sustainable growth and to reduce unemployment, and encourages governments to take action to boost productivity, enhance growth and strengthen their respective labor markets.

Suggesting that economic growth will remain moderate in the near term, Germany's leading index edged up 0.1% (m/m) to 108.2 in December, after recording a 0.5% rise in November, and a 0.1% gain in October. The index has been on an upward trend throughout 2013. Meanwhile, the coincident economic index, which gauges the current economic situation, decreased 0.2% in December, following a 0.4% rise in November.

Developing Economies…East Asia and Pacific: Malaysia’s unemployment rate fell in December 2013, decreasing to 3.0% after rising to 3.4% in the previous month. Year-on-year, the December unemployment rate was also lower than the 3.3% recorded in 2012. The labor force participation rate rose 4.8% (y/y) in December but eased 1.3% month-on-month.

Latin America and the Caribbean: Mexico’s economic growth slowed in Q4 2013, with GDP growing 0.2% (q/q) after rising 0.8% (q/q) in Q3. On an annualized basis, GDP growth slowed for the second consecutive quarter to 0.7% in Q4, down from 1.4% (y/y) in Q3. Driving the Q4 slowdown, the primary sector contracted 0.3% (y/y) and the secondary sector shrank for the fourth consecutive quarter, decreasing by 0.4% (y/y), as construction and mining output contracted. For the year 2013 as a whole, GDP grew 1.1% (y/y) down from 3.9% in 2012.

Brazil’s current account deficit increased in January, rising to US$11.6bn, up from US$8.7bn in December. At the same time, foreign direct investment flows into the country fell to US$5.1bn in January, down from US$6.5bn in December.

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