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Prospects Daily: S&P cuts Russia’s sovereign credit rating, Russia unexpectedly hikes key rate on higher inflation risks, Brazil’s consumer confidence drops to five-year low

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Financial Markets
 
Developing-country stocks are heading for the biggest weekly loss in six weeks amid mounting tensions over Ukraine. The benchmark MSCI Emerging Market Index dropped 0.9% to the lowest level since April 1 in afternoon trading, extending its weekly drop to 1.6%. China’s Shanghai Composite Index fell 1% at the closing, and it slumped 2.9% this week amid concerns over Chinese economic slowdown. The developing-country stock gauge has declined 0.8% thus far this year, compared with a 1.2% gain for mature-market gauge.
 
Standard & Poor’s slashed Russia’s sovereign credit rating by one notch to ‘BBB-‘, the lowest investment-grade level, and warned further downgrades are possible if wide sanctions were imposed and capital flight was not curtailed. Russian financial assets slumped following the downgrade, and the country’s central bank unexpectedly raised its main interest rate shortly after, citing increased inflation risks. Russian ruble, the second worst performing currency among emerging markets this year, fell 0.6% against the dollar to 35.9800, while the yield on the county’s dollar bonds maturing in 2020 climbed 13 basis points to 4.90%, the highest level since March 17. The benchmark Micex stock index slid as much as 1.7%, before paring losses to 0.9%.
 
High Income Economies
 
With employment, consumer confidence, wages and the housing market all improving, U.K. retail sales edged up 0.1% (m/m) in March, following the downwardly revised 1.3% gain in February.
 
Russia's central bank unexpectedly raised the key interest rate to 7.5% due to higher inflation risks.  The inflationary pressures were due to more pronounced than expected pass-through effect of the exchange rate dynamics on consumer prices, the rise in inflation expectations, as well as unfavorable conditions in the markets for some goods.
 
Singapore’s industrial production advanced 12.1% (y/y) in March, following a 13.1% climb in February. Excluding bio-medical manufacturing, output increased 10.9%.  On a monthly basis, manufacturing output grew at 6.1% (m/m sa), slower than the 6.5% increase in February.
 
Developing Economies
 
East Asia and Pacific  
Malaysia’s seasonally unadjusted unemployment rate fell slightly to 3.2% in February, down from 3.3% in January, but remained above the unemployment rate of 3.0% recorded in February of the previous year. The number of unemployed fell by 11,300 (m/m) to 446,000 in February, compared with 398,500 a year ago. The seasonally adjusted unemployment rate came in at 3.2% in February, up from 3.1% in January and 2.8% in the same month the previous year. The labor force participation rate fell to 67.4% (m/m) from 67.8% in January.
 
Philippines’ trade deficit narrowed by 93.1% (y/y) in February, as exports surged and imports slowed. Led by increased shipments of manufactured goods, mineral products, and electronic equipment and parts, exports climbed 24.4% (y/y), with sales to China (+79.3%, y/y) and Japan (+67.2%, y/y) recording the highest growth rates. Meanwhile imports rose 0.3% (y/y), with purchases from China rising 5.3% (y/y) and those from the U.S. declining 11.0% (y/y). Month-on-month, exports rose 6.3% in February while imports fell 20.7%.
 
Europe and Central Asia  
Hungary’s unemployment rate dropped for the fifth consecutive month to 8.3% in the three months to March from 8.6% in the previous period, beating expectations. The March reading was the lowest since December 2008 when the unemployment rate was at 8%. The total number of unemployed decreased from 379,400 in February to 369,700 in March, the lowest since January 2009. The youth unemployment rate also fell, easing from 23.3% in February to 21.4% in March, the lowest since December 2008, when the rate was at 19.7%.
 
Latin America and the Caribbean  
Brazil’s consumer confidence index fell to a near five-year low 106.3 in April, down from 107.2 in March. The April reading was the lowest since May 2009, when the index was at 103.6. The current conditions index fell to 111.6 from 113.8 in March, while the expectations index dropped for the fifth consecutive month in April to 103.6, its lowest score since February 2010.

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