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Prospects Daily: Gold slides, German industrial production rises while UK’s falls, India’s trade deficit narrows to a 30-month low

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Financial Markets… German government securities advanced on Wednesday as lingering U.S. deadlock over the country’s debt ceiling bolstered the demand for safe-haven assets. Yields on benchmark 10-year German notes fell to 1.8%, heading for the lowest level in eight weeks. In contrast, U.S. Treasury rates climbed for a second day, with the 10-year note yield rising to 2.66%, as investors pulled the money out of the U.S. government assets amid rising risk of debt default.

Gold price slid the most in a week as the strengthening dollar damped the demand for precious metals. Gold futures for December delivery slumped 2.1% to $1,296.70 an ounce in New York morning trade, gearing for the steepest drop since October 1, as the dollar index (DXY), a gauge against a basket of six major currencies, rose 0.5% to 80.437. Silver future for December settlement declined 2.9% to $21.79 an ounce, heading for the largest drop since September 20.

High Income Economies…Janet Yellen, vice president of the U.S. Federal Reserve will be nominated by President Barack Obama to succeed Ben Bernanke as Fed chairperson today.

Signaling improvements in growth in most member countries with divergent patterns among large emerging economies, a composite leading indicator of the Organization for Economic Cooperation and Development (OECD) edged up to 100.6 in August from 100.5 in July.  A reading of 100.00 for a leading indicator means economic growth is set to be at the trend rate, which itself varies widely among large economies.  On individual countries, economic growth is expected to go above trend in the United States and Japan, and growth to firm in the United Kingdom.  In the euro area, Germany is expected to continue to lead the modest recovery, with Italy poised for a pickup in growth after almost two years of declining activity, and France is also set for a pickup.

South Korea's money supply growth eased to a two-year low in August on slower growth of bank lending.  M2, a broad measure of the money supply, grew only 3.9% year-on-year (y/y) in August, the lowest since July 2011, compared to a 4.6% rise in July.  M2 covers currency in circulation, demand deposits and deposits with a maturity of less than two years.  At the same time, liquidity aggregate, the broadest measure of the money supply, climbed 7.3% (y/y), faster than the 6.8% increase in July.

German industrial production (IP) rose a better-than-expected 1.4% (m/m sa) in August, rebounding from a revised 1.1% in July.  The rise is attributed to a jump in capital goods (4.4% m/m sa) and, in particular, motor vehicle (+13.6%) production.  On a three-monthly annualized basis, IP rose 5.6% (3m/3m saar) in August and 3.0% in July.

U.K. industrial production (IP) declined unexpectedly in August and at the fastest pace since September 2012, driven by downward contributions from all main sectors, especially the dominant manufacturing activity.  IP fell 1.1% (m/m sa) following a modest 0.2% rise in July.  Manufacturing output declined 1.2% (m/m sa) after two consecutive increases of 0.2% and 2% in July and June, respectively.  On a three-monthly annualized basis, IP rose 4.4% (3m/3m saar) in August and 3.8% in July, while manufacturing production rose 4.8% in August and 3.7% in July.

Developing Economies…East Asia and the Pacific: The HSBC China Composite Output Index, which covers both manufacturing and services, eased to 51.2 in September from 51.8 in August, with output levels increasing at a slower pace across the manufacturing and service sectors.  New order volumes rose at manufacturers at the same pace as in August but eased at service providers; increasing modestly at the composite level.  Employment levels continue to decline at the composite level; they fell for the sixth month in row at manufacturers but increased slightly at service providers.  Both manufacturers and service providers raised their output prices in September as they faced higher input costs.
 
Latin America and the Caribbean:  Brazil’s annual headline inflation, measured by the consumer price index, declined for the third month in a row to 5.8% (y/y) in September from 6.1% (y/y) in August, its lowest level since December 2012.  The central bank’s inflation target for 2013 is 4.5% plus/minus two percentage points.  Month-on-month, prices rose to 0.35% in September from 0.24% in August.  Transport prices increased the most, rising to 0.44% from -0.66% in August; and food prices accelerated to 0.14% from 0.01% in August.
 
South Asia: India’s exports rose for the third consecutive month by 11% (y/y) to US$27.68bn in September; while imports decreased by 18% (y/y) to US$34.44bn as inward shipments of gold and silver fell sharply, helping to narrow the annualized trade deficit to US$6.7bn in September from US$10.9bn in August, its lowest level in 30 months. During the period April-September exports totaled US$152.1bn, a 5.1% increase over the same period in 2012, while imports amounted to US$232.2bn, a 2% decline compared to the same period in 2012.

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