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Prospects Daily: Global equities and the dollar slump on concerns about the looming US government shutdown, Japanese manufacturing sector business sentiment at 30-month high, Romania’s central bank cuts its benchmark interest rate

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Financial Markets… Global equities and the dollar slumped on Monday as concerns about a looming U.S. government shutdown (its first one in 17 years) rattled investor sentiment. The benchmark MSCI world equity index fell 1% as the MSCI Asia Pacific Index tumbled 1.5%, the Stoxx Europe 600 Index dropped 1%, and the S&P 500 index slumped 0.8% in morning trading session. The dollar was down 0.6% against basket of six major currencies (measured by DXY index), especially against the Japanese yen and the Swiss Franc. In contrast, U.S. treasuries advanced, with the benchmark 10-yar note yield sliding to a 7-week low, as risk aversion rose amid impending shutdown.
 
Lingering political turmoil in Italy unnerved investors, sending the country’s government bonds and stocks lower today. Former Prime Minister Silvio Berlusconi withdrew a support for a five-month old coalition government by ordering five center-right ministers to quit, leaving the nation without a functioning government. Italy’s 10-year bond yield climbed as much as 32 basis points to 4.73% in earlier trading but it fell back to 4.65% later. Milan’s FTSE MIB stock index was down 1.8% after plunging 2.5% in opening session.
 
High Income Economies…Driven by a fall in energy prices together with a slowdown in food inflation, the preliminary Eurozone annual inflation fell from 1.3% (y/y) in August to 1.1% in September, which is the lowest since February 2010.  The largest price increases were seen for food, alcohol and tobacco (2.6% (y/y), compared with 3.2% in August), followed by services (1.5%, compared with 1.4% in August).
 
Japan’s manufacturing PMI rose from 52.2 in August to 52.5, the highest level recorded since February 2011 and above the 50.0 no-change mark for the seventh consecutive month.  Driving the improving business sentiment were the growth in new orders which rose at the fastest rate in over three years, and backlogs that grew at the fastest pace since April 2006.
 
South Korean industrial production increased from 0.3% (m/m sa) in July to a 1.8% gain in August the fastest pace for nine months on robust car (up 18.9% from July) and mobile phone production (11.1% from July).  On a three-monthly annualized basis, industrial production grew at 4.9% (3m/3m saar) in August up from the 1.1% decline in July.
 
Developing Economies… Europe and Central Asia: Romania’s central bank reduced its benchmark interest rate by 25 basis points to 4.25%, following a half percent cut enacted at the previous meeting. This marks the third time in a row that the central bank has reduced its benchmark rate, bringing it to its lowest level, as economic growth weakened and inflation eased.
 
Turkey’s trade deficit widened in August, rising 17% (y/y), as exports fell by 12.9% (y/y) and imports decreased by 3.9% (y/y). The main exports were vehicles other than railway, boilers, machineries and mechanical appliances. Germany was the top export destination, followed by Iraq and UK.
 
Sub-Saharan Africa: South Africa’s merchandise exports fell markedly in August, declining 7.6% (m/m) on account of a 23% contraction in sales of minerals products and a 7% (m/m) decline in exports of precious and semi-precious stones and metals. In contrast, imports fell 0.1% (m/m), driven by a 7% (m/m) decline in arrivals of machinery and electrical appliances and a 8% (m/m) fall in purchases of products of chemicals and allied industries.

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