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Prospects Daily: Spain’s economic contraction accelerates…Russia’s industrial production slows

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Financial Markets…Japanese stocks continued to fall for a third day, with the Nikkei 225 Stock Average dropping 2.1% to a three-week low level, after the Bank of Japan  deferred its stimulus measures to next year, prompting profit-taking in shares bought in anticipation of earlier and more aggressive monetary easing. The Nikkei index climbed to a 32-month high level on January 15.

Portuguese government bonds continued to gain for a fifth day, with the benchmark 10-year yields dropping 8 basis points to 5.81%, as the country is preparing to issue bonds for the first time since April 2011. Portugal’s 2-year yields also fell 26 bps to 2.99% dropping below 3% for the first time since October 2010.

Spanish Treasury raised €7 billion ($9.3 billion) from a new benchmark 10-year bond sale yesterday generating a record high demand. Foreign investors bought more than 60% of the total volume with investors from the U.K. and euro-nations accounting for nearly half of the allotted amount.

High-income Economies…In Australia, consumer price inflation increased by 2.2% (y/y) in the fourth quarter of 2012 compared with a 2.0% increase registered in the third quarter. Health care, education, housing, alcohol and tobacco have seen the fastest increase in prices ranging between 7.7 and 3.5%.

The Bank of Canada held its target for the benchmark overnight rate steady at 1.0% stating that monetary tightening was less imminent than previously expected due to more muted outlook for inflation and slow growth in household credit.

According to the Monetary Policy Committee minutes, the Bank of England maintained its quantitative easing unchanged retaining a record low 0.50% interest rate due to uncertainty about the impact of further easing on nominal demand.

The U.K. employment increased by 90,000, to 29.7 million in the three months ending November - the highest level since 1971. The employment rate edged up to 71.4% from 71.3% in June-August, but remained lower than the pre-recession peak of 73% in March-May of 2008. The number of unemployed declined to 2.49 million from 37,000 from June-August. The ILO measure of the unemployment rate fell marginally to 7.7% in September-November from 7.8% in June-August. The number of jobless claims declined by 12,100 (m/m) to 1.56 million in December – to the lowest since June 2011.

According to the survey by Rightmove, house prices in the U.K. increased by a marginal 0.2% (m/m) in January, recovering from sharp declines in the past two months, including a 3.3% fall in December and 2.6% drop in November. On an annual basis, prices surged by 2.4% with the house prices in London growing 3.6% (m/m) and 9.7% (y/y).

The FHFA U.S. House Price Index rose 0.6% in November. For the 12 months ending in November, U.S. prices rose 5.6%. The U.S. index is 15.2% below its April 2007 peak and is roughly the same as the August 2004 index level. National home prices have not declined on a monthly basis since January 2011.

Singapore's consumer price inflation accelerated to 4.3% (y/y) in December from 3.6% in November mainly on the account of increase in housing and transportation costs.

Spain's GDP continued to fall for the fifth consecutive quarter with the rate of decline accelerating to 0.6% (q/q) in the fourth quarter from 0.3% in the third quarter. On the annual basis, GDP declined 1.7% (y/y) in the fourth quarter following a 1.6% decline in the third quarter. For the whole of 2012, economic contraction is estimated at 1.3%.

Industrial production growth in Taiwan slowed to 2.39% (y/y) in December from 5.85% in November. On a monthly basis, industrial production fell 0.63% (m/m) in December. Meanwhile commercial sales rose 1.7% (y/y) in December while retail sales were up 1.8%.

Government debt in the Euro Zone stayed broadly unchanged in the third quarter with the total public debt estimated at 90% of GDP at the end of the third quarter – almost unchanged from 89.9% recorded in the second quarter. On an annual basis, total public debt in the third quarter of 2012 was higher than 86.8 percent recorded in the third quarter of 2011.

Developing Economies… Brazil’s CPI increased 0.88% (m/m) in the month to mid-January and 6.02% (y/y). Inflation accelerated from 0.69% (m/m) and 5.78% (y/y) in December and was above the 4.5% mid-point inflation target.

Conference Board's leading economic indicator for China slowed in December to 0.4% (m/m), following a 1.1% increase in November and a 1.6% increase in October with declines in real estate activity, drop in new export orders and weak consumer confidence accounting for the slowdown.

Malaysia's inflation slowed 1.2% (y/y) in December from 1.3% in November. For the whole 2012, consumer price inflation was recorded at 1.6%.

Russia’s industrial production slowed to 1.4% (y/y) in December to the weakest pace in eight months and slower than 1.9% recorded in November.

South Africa's inflation increased to 5.7% (y/y) in December from 5.6% in November. For the whole 2012, the average annual inflation rate was 5.6%, higher than 5% recorded in the preceding year.

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