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Prospects Daily: Portugal’s funding costs jumps to 10-month high, U.S. housing starts disappoint, Malaysia’s inflation comes in below target

Financial Markets… European and Japanese stocks advanced on Wednesday ahead of the Federal Reserve’s decision on stimulus program. The Stoxx Europe 600 Index gained 0.3%, trading near its five-year high level reached on Monday, while Japan’s Nikkei index closed up 1.4% to an eight-week high on expectations the Fed’s tapering will be modest.

Portugal’s funding costs jumped to a 10-month high at a new auction of 18-month bills today. The country sold €750 billion of government securities due in March 2015 with an average yield of 2.293%, up from a rate of 1.603% at a previous auction of similar maturity bills in June and is the highest rate since November.

Hungary is set to issue as much as $5 billion of dollar bonds, becoming the fifth developing-country sovereign borrower to tap global bond market this month. Indonesia, Romania, Russia, and South Africa sold international bonds last week as many developing-country borrowers were trying to raise money as much as possible before the Fed’s tapering.

High Income Economies… Significantly lower than July’s 5.7% (m/m sa) increase, U.S. privately-owned housing starts in August came in below expectations at a seasonally adjusted annual rate of 891,000, a 0.9% (m/m sa) increase from July, and 19.0% (y/y) above that for August 2012.  The modest increase in housing starts was largely due to a jump in single-family housing starts, which surged up 7.0 (m/m sa) from July, but was partially offset by multi-family starts that tumbled 11.1% (m/m sa).  Meanwhile, building permits, an indicator of future housing demand, fell 3.8% (m/m sa) from July, a marked change from July’s 3.9% increase.

Separately, the U.S. National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index came in at 58 in September, unchanged from August, and represent the highest readings since the index hit 61 in November 2005.
Poland’s industrial production declined to a 2.2% (y/y) increase from July’s 6.3% growth.  The slowdown reflects a strong decline in mining and manufacturing, which was partially offset by a modest increase in electricity and utility output.
The Swiss Centre for European Economic Research and Credit Suisse (ZEW-CS) Indicator of economic expectations advanced from 7.2 in August to 16.3 in September, a five-month high.  The indicator reflects expectations of surveyed financial market experts regarding economic development in Switzerland on a six-month time horizon.

Developing Economies… East Asia and Pacific: Malaysia’s annual headline inflation eased in August. The consumer price index rose 1.9% (y/y) in August from a 2% increase in July, remaining well below the central bank target of 2.5% for 2013. Declines in the prices of clothing and communication costs helped to offset the increase in food and non-alcoholic prices. Month-on-month the CPI rose 0.1%.
 
Sub-Saharan Africa: South Africa’s annual headline inflation, measured by the consumer price index, accelerated in August, rising 1.1% (m/m) from 0.3% in July. Year-on-year the CPI rose 6.4% in August up from 6.3%, its highest since August 2009, remaining above the upper end of the Reserve Bank’s inflation target range of 6%. Higher food prices, which rose faster than the previous month, and higher clothing and transportation costs drove the pick-up in the consumer price index.
 
At the same time, South Africa’s retail sales rose 2.8% (y/y) in August, faster than the July’s 1.4% increase, driven by a strong growth in sales of hardware, paint and glass and clothing footwear and leather goods. In the three-months ending in July retail sales grew 0.9% (3m/3m, sa) from the preceding three months.
 
Nigeria’s annual headline consumer price inflation eased to 8.2% (y/y) in August from 8.7% in July owing to a deceleration in food prices. However, core inflation, which excludes volatile agricultural products, edged up 7.2% (y/y) in August from 6.6% in July. 

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