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Prospects Daily: Ireland’s long-term borrowing costs slid below the U.K.’s, U.K. manufacturing output rises; trade gap narrows, China’s consumer price inflation at 18-month low

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Financial Markets


Ireland’s long-term borrowing costs fell below the U.K.’s for the first time in nearly six years, reflecting the growing appetite for high-yielding euro-zone government debt and divergent interest rate expectations between these two countries.  Benchmark Irish 10-year bond yields slid as much as 4 basis points to 2.64%, while the comparable U.K. bond yields rose 1 basis point to 2.66%, rising above Ireland’s yields for the first time since October 2008.  Low inflation, slow but positive growth, and the prospect of a further rate cut by the European Central Bank in near future all support lower yields for Ireland, but much more advanced recovery and growth expectations in the U.K. would put some upward pressure U.K. yields. 

Most developing countries retreated today on China data, with the benchmark MSCI index sliding about 0.1%.  China’s Shanghai Composite Index fell 0.2%, extending this week’s drop to 0.8% as the April inflation data signaled slowing consumption demand.  The Shanghai index has declined 5% thus far this year amid concerns over the slowing Chinese economic growth.  In contrast, India’s benchmark Sensex index jumped 2.9% to a new record high on election optimism, while the Philippine’s benchmark stock gauge climbed 1.2% following the rating upgrade by S&P’s yesterday. 

High Income Economies

Canada's jobless rate was unchanged at 6.9% in April as the number of people participating in the labor market edged down and employment decreased by 29,000.  Total employment rose by 0.8% (y/y) or 149,000, evenly split between part-time and full-time work.  In April, employment decreased in accommodation and food services, as well as finance, insurance, real estate and leasing, while employment increased in business, building and other support services.  From April 2013 to April 2014, the participation rate fell from 66.5% to 66.1%, mainly the result of a decline in the participation rate of the population aged 25 to 54, the group most likely to participate in the labor market.

Gaining momentum for the fourth consecutive month, U.K. manufacturing output gained 0.5% (m/m) in March following February’s 1.0% increase.  Meanwhile after rising 0.8% in February, industrial output dropped slightly by 0.1%, largely due to a plunge in oil and gas extraction.  

At the same time, with merchandise exports increasing 4.9% (m/m) and imports gaining 2.8%, the U.K. visible trade deficit narrowed to GBP 8.5 billion in March, the lowest since last December, from GBP 8.7 billion in February.  Meanwhile, the service trade surplus increased to GBP 7.2 billion from GBP 7 billion.   
Consequently, the combined trade balance showed a shortfall of GBP 1.3 billion, smaller than February's GBP 1.7 billion deficit. 

Japan's leading index fell more-than-expected from 108.7 In February to 106.5 in March, a 12-month low.  At the same time, the coincident index that measures the current economic situation improved to 114.0 in March from 112.9 in February.  Meanwhile, the lagging index, which indicates the past performance of the Japanese economy, dropped to 116.8 in March from 117.0 in February.
 

Developing Economies

East Asia and Pacific  
China’s consumer price inflation slowed to 1.8% (y/y) in April, an 18-month low, following a 2.4% increase in March as food prices eased.  With this reading, consumer price inflation moved further below the government’s target of 3.5% for 2014.  Upward pressure came from services (+2.5%); clothing (+2.3%); and residential housing (2.4%).  On a monthly basis, consumer price inflation eased 0.3%, following a 0.5% decline in March.  Producer prices also declined in April, falling 2% (y/y) after decreasing 2.3% in March.      

Europe and Central Asia
Bulgaria’s industrial production growth slowed in March, rising by a working-day adjusted 4.2% (y/y) compared with 5.9% in February.  Manufacturing output growth slowed, advancing 4.7% in March, following a 6.3% increase in February; while mining and quarrying production grew 6.7%, after declining 0.7% in February.  On a monthly basis, industrial production fell 1.3% in March, posting a decline for the second consecutive month.  Industrial production decreased 0.1% in February.

Meanwhile, Bulgaria’s retail sales, excluding automobile trade, slowed markedly in March, rising 5.8% (y/y) compared with 9.3% in February.  Sales of food, beverages and tobacco rose 5.6% in March, while sales of non-food products except fuel increased by 9.2%.  Month-on-month, retail sales rose a seasonally adjusted 0.4% in March, rebounding from a 0.4% decline in February.

Latin America and the Caribbean
Brazil’s annual consumer price inflation rose to 6.3% in April, up from 6.1% in March, moving to its highest level in ten months, surpassing the central bank’s target of 6.1% for 2014.  On a monthly basis, inflation slowed to 0.7% in April, down from 0.9% in March, as prices of food and beverages eased

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