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Prospects Daily: Indonesian rupiah falls, Euro Area consumer confidence at near 2-year high, Brazil current account deficit narrows

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Financial and Commodity Markets…Global equities advanced on Tuesday, with the benchmark index gearing for a five-year high, as investors speculated that Chinese government will increase spending in an effort to maintain annual economic growth of at least 7%. Robust earnings reports from major U.S. companies also propelled the S&P 500 index to a fresh record high in morning trade.  The MSCI world stock index is up 0.3%, within reaching distance of five-year high reached in May.

Brazil’s swap rates dropped to a six-week low amid signs that consumer prices declined and consumer confidence waned, prompting speculation that the government may limit the pace of rises in borrowing costs. Swap rates on the contract due in January 2015 slid 7 basis points to 9.28%, the lowest level since June 7. Brazil’s real gained 0.1% against the dollar to 2.2317 after strengthening 0.6% yesterday as the nation’s central bank supported the currency by selling $995 million in foreign-exchange swap contracts.
Indonesia’s rupiah fell 1.3% versus the dollar to 10,200 on Tuesday, after touching a 4-year low of 10,258 earlier, as the country’s central bank continued to ease its control on the rupiah trading in the offshore market. The rupiah has depreciated 2.7% this month and 5.5% this year, becoming the worst performing currency among Asia’s 11 most-traded currencies after Japan’s yen and India’s rupee.  Meanwhile, the benchmark 10-year yield on the country’s government bonds fell 41 basis points to 7.44%, the most decline since 2011.

High Income Economies...Euro Area consumer confidence rose to its highest level in almost two years in July. Consumer confidence rose to -17.4 points in July from -18.8 points in June, the best since August 2011, when it stood at -16.8. Following on from better manufacturing data during Q2 , the improvement points to a recovery in the second half of this year. Separately, French industrial confidence rose in July to its highest in over a year, with the INSEE index rising for the fourth month in a row to reach 95 from 93 in June. 

Spain’s recession eased in Q2, supported by an improving external sector. Preliminary Q2 GDP estimates showed a 0.1% (q/q) fall in output, slower than the 0.5% fall in Q1. On an annual basis, the economy contracted 1.8%b (y/y) in the June quarter, following a 2% decline a quarter ago.

Taiwan's industrial production decreased for the fifth successive month in June and at a faster rate than in the previous month. Industrial production fell 0.43% (y/y) in June, after recording a 0.27% contraction in the previous month led by a fall in mining and manufacturing output.

Developing EconomiesEurope and Central Asia: Turkey’s central bank raised its overnight lending rate by 75bps to 7.25%, while keeping its policy rate (the one-week repo rate) and the overnight borrowing rate unchanged at 4.5% and 3.5%, respectively. Inflation accelerated to a nine-month high of 8.3% (y/y) in June from 6.5% (y/y) in May, driven mainly by higher food prices and above the 5% upper bound of the central bank’s inflation target.

Latin America and the Caribbean: Brazil’s current account deficit (CAD) narrowed to $3.6bn in June, down from a deficit of $6.4bn in May. For the year, Brazil has accumulated a CAD of $43.5bn, well above the $25.2bn posted in the same period a year ago as falling export prices and rising imports of fuel widened the trade deficit. Although foreign direct investment (FDI) jumped to $7.1bn in June, up from $3.9bn in May, it falls short of what is needed to cover the CAD; in first six months of the 2013, the country received $30bn in FDI.

South Asia: India, the world's biggest gold-buying nation, announced new measures to curb imports of gold which, together with crude oil imports, have been the drivers of widening current account deficit as some 16% of India's total merchandise exports are made up of jewelry and gems. India's CAD for the year at end-March stood at $88bn, or 4.8% of GDP, up from $78bn, or 4.2% of GDP, in the previous year.

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