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Prospects Daily: Global stocks edge higher on better Euro Area and US PMI data, China manufacturing slows further

Financial Markets…Global stock markets edged higher on Wednesday as gains in European and U.S. equities offset a retreat in Asia shares. Europe’s benchmark stock index rose to the highest level since May 31 amid sign of growth in the region’s manufacturing, while U.S. stocks opened higher this morning  on strong earnings results from technology giant Apple and positive Euro-area economic data. In contrast, most Asian shares retreated amid renewed concerns over Chinas’ economic outlook in the wake faster-than-expected slowdown in the country’s manufacturing activity.

U.S. Treasuries fell for a second day, with the benchmark 10-year yield rising 7 basis points to 2.57% amid growing speculation that the Federal Reserve may scale back its stimulus program sooner than previously expected. U.S. government bonds have remained somewhat steady thus far this month after sliding 1.4% last month. Meanwhile, the U.S. Treasury will auction $35 billion of 5-year notes today after selling $35 billion of 2-year securities yesterday.

High Income Economies...The flash reading for the Euro Area composite PMI for July rose to 50.4 from 48.7 in June. Any reading above 50.0 represents growth, and this marks the first time that the index has crossed 50 since January 2012.  Separately an ECB bank lending survey showed that the net percentage of banks tightening credit standards for firms in Q2 in the Euro Area remained unchanged from Q1 levels at 7%. However, this is down substantially from the 35% reported for Q4 2011.

Within the Euro Area, output rose at the fastest rate for 5 months in Germany, with its composite PMI rising to 52.8 from 50.4 led by a strong improvement in manufacturing output. In France, the rate of decline eased to the slowest (48.4) seen since output began falling in March 2012 buoyed by a return to growth in manufacturing, which reported the largest rise in production for 17 months. Outside of the two biggest member states, output fell only marginally posting the smallest decline since June 2011.

The US flash manufacturing PMI rose to a 53.2 reading in July from 51.9 in June. This is the highest level in four months, led by strong improvements in new orders and employment. Separately, new home sales jumped by 8.3% (m/m) to an annual rate of 497,000 in June.

Developing EconomiesEast Asia and Pacific: China’s first estimate of HSBC/Markit manufacturing PMI fell to 47.7 this month from June's final reading of 48.2, marking a third straight month below the 50 mark which demarcates expansion of activities from contraction. It was the weakest level since August 2012 thanks to weaker new orders and faster destocking.

Europe and Central Asia: Albania’s trade deficit shrank by 28% (y/y) to ALL 20.6bn in June, down from a shortfall of ALL 22bn in May. Exports continued their expansion at 17.2% (y/y) while imports declined 10.5% (y/y) in June.

Sub-Saharan Africa: South Africa's consumer price inflation weakened to 5.5% (y/y) in June, the lowest level in five months, down from 5.6% (y/y) in May. Main driver of inflation was a 7% rise in food prices.

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