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Prospects Daily: Japanese stocks decline on stronger yen, Spain exits recession, South Africa annual headline inflation slows

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Financial Markets…Japanese stocks declined the most in three weeks as stronger yen pushed exporters’ shares lower. The benchmark Topix index lost 1.5%, the steepest drop since October 2, and the Nikkei 225 index fell 2%. The Japanese currency appreciated against all of its 16 major counterparts, gaining 0.8% versus the dollar to 97.37. The Topix has been the worst performer among 24 developed-market benchmark stock indexes this month, after the Japanese government decided to raise the sales tax for the first time since 1997 and the U.S. budget impasses closed down parts of the government.

Spanish government bonds advanced, pushing the benchmark 10-year yield to a three-week low of 4.13%, after the government data showed the country came out from lingering recession in the third quarter. The risk premium that investors asked for holding Spain’s government securities instead of comparable German bunds fell to 237 basis points as well, heading for the narrowest level in more than two years.

High Income Economies… After nine consecutive quarters of decline, Spain’s GDP edged up 0.1% (q/q) for Q3, offsetting Q2’s 0.1%.  The recovery was underpinned by a 0.4% (q/q) rise in exports and a 0.1% growth in private spending, which were partially offset by a 0.3% decline in domestic demand and a 0.1% fall in investment.  On annual comparison, however, GDP continued to decline, but at a slower rate of 1.2% (y/y) than 1.6% in Q2.

Expecting exports and investment to increase, Germany raised its 2014 economic growth forecast from 1.6% (y/y) to 1.7% with the growth outlook for 2013 being maintained at 0.5%.

After rising steadily in the previous three months, Belgium's business confidence indicator declined to -7.7 from -6.7 in September.  Sentiment was lower in the manufacturing and construction sectors, but improved in the business-related services and trade sectors.

Citing that global economic backdrop has become less "favourable" for Canada, Bank of Canada held its central bank interest rate at 1% and signaled it will not be increasing the rate anytime soon.  The Bank also reduced its growth forecasts: from 1.8% to 1.6% for 2013; from 2.7% to 2.3% for 2014; and from 2.7% to 2.6% for 2015.

An unexpected contraction in transport costs tamed Singapore's September consumer price index. The CPI grew 1.6% (y/y), a slowing from 2% recorded in August.

Developing Economies… East Asia and Pacific: The Monetary Policy Committee of Turkey’s central bank decided at its October meeting to keep it’s the benchmark one-week rep policy rate unchanged at 4.5%, stating that financial conditions and inflation continue to be stable. The overnight lending rate, the upper end of the interest rate corridor, and the borrowing rate, the lower end, were also left unchanged at 7.75% and 3.5% respectively.
Latin America and the Caribbean: Columbia’s trade balance improved in august, moving into a surplus of US$0.01bn (y/y) from a deficit of US$0.67bn the previous year as exports rose and imports declined. Exports totaled US$4.98bn up from US$4.65bn. Year-on-year, exports increased 8.9% boosted by the sales of fuels and mining products, which rose 28%. Mitigating this gain, manufacturing shipments decreased 17.4 (y/y) from a 2.1% decline in July; and exports of agricultural products, food and beverages fell by a 4.6% following a contraction of 11.2% in July. Imports totaled US$4.97bn in August, down from US$5.11bn in July and US$5.24 the previous year, due mainly to a contraction in imports of manufactured products which fell by 5.8%.  
Sub-Saharan Africa: South Africa’s annual headline inflation, measured by the consumer price index, eased to 6.0% (y/y) in September after having accelerated to 6.4% (y/y) in August owing to lower food and petrol prices. The upper limit of the central bank’s inflation target for 2013 is 6%. Costs of food and non-alcoholic beverages eased to 5.9% (y/y) in September from 7.1% (y/y) in August; costs of transport decreased to 6.9% (y/y) from 8.7% (y/y) in August; and prices of communication slowed to 1.7% (y/y) from 2% (y/y) in August. Month-on-month, prices rose to 0.5% in September from 03% in August driven by the household contents and services index, food prices, and housing and utilities, which increased 1.1%, 0.8% and 0.8% respectively.

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