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Prospects Daily: Japan sold record US treasures in May, German IP, export and factory orders data weaken, Turkey’s IP growth slows

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Financial Markets…Japan unloaded record amounts of U.S. Treasuries in May amid the steepest monthly loss for the securities in more than three years. Japanese investors reduced a net 3 trillion yen ($30 billion) of their holdings of U.S. government bonds in a fifth consecutive monthly of overall sales that were the biggest on record. Meanwhile, the country’s investors were also net sellers of foreign debt at a record volume of 2.96 trillion yen, pushing year-to-date total to 10.6 trillion yen.

The Dollar Index, which tracks the greenback against the basket of major currencies, reached a three-year high on Monday, hitting 84.588 in earlier trading, amid growing speculation positive U.S. economic data could encourage the country’s central bank to start scaling back its stimulus.

India’s rupee fell to a record low against the dollar on concerns that reduced monetary stimulus by the U.S. Federal Reserve could prompt capital outflows from the country. The rupee hit a low of 61.16 per dollar on Monday, surpassing the previous record of 60.7650 reached on June 26.

High-income EconomiesGreece, currently in its sixth year of recession, agreed new economic and deficit reduction steps with the IMF-ECB-EU troika needed to unlock the next €8.1 billion tranche of bailout funds, part of which are needed to redeem bonds maturing in August. EU officials have said ministers may only agree to release the money in stages once interim targets are hit. Since 2010, Greece’s bailout packages have included, first, a 3-year, €110-billion IMF Stand-By Arrangement in 2010, and then a €173-billion package, under the IMF’s Extended Fund Facility in March 2012, with both jointly funded with euro area members.

Germany's industrial production and exports dropped more than expected in May, with output down 1% (m/m sa), the first fall since January and following a 2% gain in April, led by falling construction and investment goods output. On a 3m/3m saar basis, output was up 9.1%. Exports were down 2.4% (m/m) on the month in May, and overall momentum on a three-month basis slowed to 1.4% (3m/3m saar) from 3.0% in April.

Separately in Germany the rate of growth of factory orders, a gauge of future investment, slowed to 5.6% (3m/3m saar) in May from 9.3% in April, reflecting two consecutive months of declines, led by weak domestic and overseas orders. 

Developing EconomiesEurope and Central Asia: Turkey’s industrial production growth slowed to 1% (y/y) in May, following a 3.5% (y/y) growth in April. Production rose for the fifth month in a row, but the pace of growth was the slowest since October last year. Manufacturing output was up 1.4% (y/y), while output in the utility sector rose 1.6% (y/y). Mining and quarrying output shrunk 6% (y/y), after witnessing growth in April.

Middle East and North Africa: Egypt's foreign reserves fell from $16bn in May to $14.9bn at the end of June. In February, Egypt's foreign reserves dropped to the lowest level of $13.5bn dollars, but thanks to loans from Qatar, Turkey and Libya, the reserves recovered. Egypt's foreign reserves stood at about $36bn dollars in January 2011, before the protests that ousted former President Hosni Mubarak, and have been on a decline since then.

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