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Prospects Daily: Global equities extend last week’s decline on concerns over ongoing US government shutdown, the World Bank lowers its growth forecast for Developing East Asia

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Financial Markets… Global equities retreated on Monday, extending last week’s decline, as growing concerns over ongoing U.S. government shutdown and the debt-ceiling deadlock weighted on investor sentiment. The Stoxx Europe 600 Index fell 0.7% to nearly four-week low level in afternoon trading, while the MSCI Asia Pacific Index slid 0.8%, after falling 1.2% last week, led by a 1.4% loss of Japan’s Topix index. U.S. equities opened lower again, with the S&P 500 dropping 0.7% and the Dow Jones industrial average falling 0.8%. In contrast, U.S. Treasuries advanced, with the benchmark 10-year yields sliding to 2.62%, as the prospect of sovereign-debt default boosted demand for safe-haven government debt.
Indians’ financial markets slumped today on speculation foreign capital inflows to the nation’s stocks and debt will be reduced amid no sign of early resolution of U.S. budget impasse. India’s S&P BSE Sensex index dropped as much as 1.4%, while the nation’s government bonds also fell with the 10-year yield climbing 7 basis points to 8.68%. Indian rupee fell 0.6% against the dollar to 61.7950, after appreciating 1.7% last week. The rupee depreciation was somewhat curbed as the country’s exporters were seen transferring their foreign earnings.
Indonesia’s dollar bonds are outperforming local-currency debt as the nations’ currency is depreciating the most among major developing-country currencies. The country’s global bonds climbed 7% since the beginning of September, after slumping 18% in August in the worst loss since 2008, compared with the 4.3% gain in domestic debt. Indonesia’s rupiah weakened for a seven-consecutive month last month, losing 5.7%, becoming the worst-performing developing-country currency.
High Income Economies…Driven by the deterioration in respondents’ future expectations, Eurozone investor confidence deteriorated unexpectedly in October.  The Sentix index stood at +6.1 for October, down from +6.5 in September.  A reading of zero represents the balance between optimism and pessimism.  The index turned positive for the first time in two years in September.
Exports of Taiwan, China exports fell by a much larger than expected 7% (y/y) to US$25.25 billion in September from a year earlier, signaling that global demand for the island's consumer electronics has been unexpectedly weak.  Exports to Europe increased, while shipments to mainland China, Hong Kong, the U.S. and Japan recorded declines.
According to preliminary data, Japan's leading index dropped for the second time in three months in August.  The leading index that is designed to measure changes in the direction of the economy fell to 106.5 in August from 107.9 July.  The coincident index, a measure of the current economic situation, slipped marginally to 107.6 from 107.7 in July.
Developing Economies…East Asia and Pacific: The World Bank reduced its growth forecast for Developing East Asia as growth in China and the region’s other large economies is seen to ease.  Growth in East Asia is now projected at 7.1% in 2013 down from 7.8% projected in April; and at 7.2% in 2014 down from the earlier forecast of 7.6%.  China, the region’s largest economy, is forecast to grow by 7.5% in 2013 and 7.7% in 2014, a notably slower pace than the April forecasts of 8.3% for 2013 and 8% for 2014. In addition to China, the growth forecasts for Indonesia, Malaysia and Thailand have also been revised downward on account of lower investment, softening global commodity prices, and lower export growth. 
Europe and Central Asia:  Romania’s economy grew at a slower pace in the second quarter of 2013. Revised data show that GDP increased 1.4% (y/y, sa) in the second quarter, in line with previous estimate, and lower than the 2.3% GDP growth recorded in the first quarter.  Domestic consumption and improvements in exports contributed to the second quarter growth, whereas government consumption and gross fixed capital formation recorded declines.
Sub-Saharan Africa: South Africa’s gross reserves rebounded in September, with gold and foreign assets increasing by US$2bn to US$50bn, up from US$47.9bn in August due mainly to the sales of foreign bonds by the National Treasury.  Net gold and foreign exchange reserves rose slightly to US$45.7bn from US$45.5bn in August.

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