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Prospects Daily: Japan’s trade deficit rises to record levels…Italian industrial orders contract, UK employment highest since records began, Chinese FDI falls

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Financial Markets… Japanese shares advanced on Wednesday, with the Nikkei 225 Stock Average rising 0.8% to a 52-month high closing, as the yen’s lingering weakness pushed exporters’ shares higher. The Nikkei index has risen 10% thus far this year, fueled mostly by the yen’s depreciation, after gaining 22.9% last year. The Japanese currency has dropped some 15% versus the dollar since November.

German government bonds fell for the first time in three days, with the benchmark 10-year yield climbing 5 basis points to 1.67%, amid weaker-than-expected demand at a new auction of the securities today. The country sold €4.04 billion of the debt with an average yield of 1.66%, up from 1.56% in January auction.

Developing-country equities gained the most in three weeks, with the benchmark MSCI Emerging Markets Index posting its first gain of 0.7% this week, as technology stocks climbed to their highest level since 2000. Meanwhile, the risk premium investor demand to own developing-country sovereign debt over U.S. Treasuries tightened 3 bps to 272 bps.

High-income EconomiesJapan’s trade deficit widened to a record level of 1.63tn yen in January as rebounding exports were offset by a higher energy import bill. A weaker currency contributed to a rebound in exports which grew by 6.4% (y/y) in January, the first annual increase in eight months, but they also pushed up the cost of imports which grew by 7.3% (y/y).

U.S. housing starts fell to a seasonally adjusted annual rate of 890,000 in January, a drop of 8.5% (m/m) from 973,000 in December, although this was still the third highest level since 2008. Compared with a year ago construction was up by 23.6% (y/y).  Construction of single-family homes, which made up two-thirds of total starts in January, rose 0.8% (m/m) to a rate of 613,000 units, up 20.3% (y/y) from a year earlier. That figure is the highest since July 2008.

The contraction in Italy’s industrial orders deepened in December, with orders dropping a seasonally adjusted 1.8% (m/m) led by a drop in overseas demand, compared to a 0.6% decline in November.

UK jobless claims fell by 12,500 (m/m) to 1.54 million in January compared to a drop of 15,800 in December. The total number of employed persons in the country rose to 29.73 million in the three months to December, the highest since records began in 1971, and up from 29.68 million in November.

Inflation in France, as per the harmonized index of consumer prices (HICP) eased to its lowest level in around three years to 1.4% (y/y) from 1.5% in December.

Developing EconomiesEast Asia and Pacific: China’s FDI inflows fell at their fastest rate in more than three years in January. China attracted US$9.3 billion FDI in January, down 7.3% (y/y).

Europe and Central Asia: Turkey's central bank cut its overnight lending and borrowing rates by 25 basis points but kept its benchmark one-week repo rate steady at 5.5%. The overnight lending rate, which forms the ceiling of the interest rate corridor, was cut to 8.5% from 8.75% and the borrowing rate, which forms the bottom, was cut to 4.5% from 4.75%. The central bank also raised foreign exchange reserve requirements to 11.5% from 11.1% in an attempt to curb high credit growth.

Latin America and the Caribbean: Brazil’s retail sales slowed in December growing 5% (y/y) compared to 8.4% (y/y) in November. On a monthly basis, retail sales fell by 0.5% (m/m) reversing the gains of 0.3% (m/m) in November.

Middle East and North Africa: Egypt’s fuel oil, gas and diesel prices are set to increase by 50% for industry and manufacturers, excluding electricity and food producers. The Egyptian government has announced a new set of price increases, as a means of reducing its obligations for energy subsidies, which together with those for food products, estimated at a fifth of the government’s budget and about 10% of GDP.

Sub-Saharan Africa: South Africa’s inflation eased to 5.4% (y/y) in January compared to 5.7% (y/y) in December on the account of slowing growth of food and transport prices. The inflation is within the central bank’s target range of 3-6%.

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