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Prospects Daily: ​Global equities extend their rally on optimism over global growth, Japan Q1 GDP growth highest since Q3 2011, Mexico’s annual consumer price inflation stable in May

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Financial Markets
 
Global stocks markets extended their rally that started last week on Monday, bring many stock indexes to record highs amid optimism over the global economic recovery. The benchmark MSCI world stock index was up about 0.2% at 427.27, approaching its record high reached on November 2007. Asian stocks touched their highest levels in seven months, while European shares extended their six-year highs. U.S.’s benchmark S&P 500 index was poised to post its seventh record closing in eight trading sessions. Developing-country stocks advanced as well with the benchmark MSCI index gearing for a one-year high, helped by better-than-expected China’s exports.
 
U.S. Treasuries prices drop for a second day, burdened by this week’s $62 billion sale of new 3-year, 5-year, and 30-year debt and increase risk appetite after Friday’s robust U.S. jobs report. Expected improvement in this week’s data release on U.S. labor market and consumer confidence also weighed on Treasuries. Yields on the benchmark 10-year notes widened 2 basis points (bps) to 2.61% after climbing 11 bps last week. Further, the extra yield that benchmark U.S. 10-year Treasuries offer over their G7 counterparts reached 72 bps, the most since April 2010.
 
High Income Economies
 
Portugal's GDP grew 1.3% (y/y) in Q1, more than the 1.2% estimated earlier, but less than the 1.5% increase seen in Q4.  Domestic demand advanced 2.9% annually in Q1 after rising 0.5% in Q4, mainly due to strong investment, which grew 12.2% in Q1.  Meanwhile, exports growth slowed to 4.3% from 9.1%, and imports climbed 8.5%, faster than the 6.4% in Q4.
 
According to second estimates, Japan’s GDP rose 1.6% (q/q) in Q1, bigger than the 1.5% growth estimated initially and the consensus estimate of 1.4% growth.  This followed a 0.1% rise in Q4 2013 and marked the fastest increase since the 2.6% increase in Q3 2011.  The Q1 performance reflected strong economic activity in the form of consumer spending and investment by corporations ahead of the sales tax hike in April.
 
 
Developing Economies
 
East Asia and Pacific  
China’s central bank reduced the required reserve ratio for banks that mainly lend to small businesses and rural borrowers by 50 basis points. The cut, which will come into effect on June 16, will apply to banks for whom loans to the farm sector or to small businesses account for at least 50% of total new lending in 2013 and for whom such loans represented at least 30% of total outstanding loans. In April, the central bank cut the required reserve ratio by 2 percentage points for rural commercial banks and by 0.5 percentage points for rural cooperative banks.  Comprise
 
Europe and Central Asia  
Bulgaria’s industrial production increased at a faster pace in April, rising by a working-day-adjusted 5.0% (y/y), after recording a 3.6% growth in March. Among the components of the index, manufacturing production expanded by 3.8% (y/y), slowing from March’s 4.2% (y/y) growth; while mining and quarrying production rose 11.1% (y/y). On a monthly basis, industrial production increased by a seasonally adjusted 1.4% in April, following a 1.5% decline in March.   
 
Latin America and Caribbean  
Mexico’s annual consumer price inflation was 3.5% in May the same as in April, remaining below the 4.0% upper limit of the central bank target range, as higher food prices were offset by a slowdown in prices of public utilities.  Food prices accelerated to 2.7% (y/y) from 1.7% in April. At the same time, cost of housing, water, electricity and gas slowed to 2.6% (y/y) from 3.1% (y/y) in April. On a monthly basis, consumer prices fell further, decreasing 0.3% in May following April’s 0.2% decline.  Core inflation, which excludes some volatile food and energy prices, rose marginally. 

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