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Prospects Daily: Spanish bonds decline…US jobless claims fall to new low…China inflation picks up

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Financial MarketsSpanish government bonds declined on Thursday, with the benchmark 10-year yield climbing 9 basis points to 4.19% after reaching 4.21% earlier, after the country’s new debt auction saw somewhat weaker-than-expected demand. Spain sold €4.57 billion of 3-, 5-, and 13-year bonds today, with the bid-to-cover ratio (proxy for investor’s demand for a bond auction) dropping considerably from the previous auctions.

Brent oil for June settlement dropped for a third day, sliding as much as 0.8% to $103.55 a barrel in London trading, as U.S. crude stockpiles increased. West Texas Intermediate (WTI) for June delivery fell 87 cents to $95.75 a barrel. Brent oils’ premium to WTI remained below $8 after closing at a $7.72 premium yesterday, which was the narrowest spread level since January 2011.

Developing-country stocks gained for a fifth day, with the benchmark MSCI index gearing for the highest closing since March 11, as led by South Korean shares. South Korea’s kospi Index advanced 1.2% as the country’s central bank unexpectedly cut it’s the benchmark interest rate. Elsewhere, Chinas’ Shanghai Composite index fell 0.6% and India’s Sensex index dropped 0.3%.

High-income EconomiesUS jobless claims fell to a new five year low indicating further improvements in the labor market. The four-week moving average of initial claims fell to 336,750 from the previous week's 343,000, down to its lowest level since November of 2007.

South Korea’s central bank cut interest rates by 25 basis points to 2.5% after six months of holding steady to support a slowing economy. Inflation, which stood at 1.2% (y/y) in April, is well below the central bank’s inflation target range of 1.5-3.5%. Exports, which amount to about 50% of GDP, have grown at a sluggish pace, reflecting a slow global economic recovery and a strengthening of the Korean won in recent months. 

UK industrial output posted a second consecutive monthly gain, rising by 0.7% (m/m) in March boosted by manufacturing and a recovery in oil and gas output. Overall, output was up by 0.7% (q/q saar) in Q1, a considerable improvement from the 8.3% decline in Q4 last year. Separately, the UK central bank kept its stimulus program of quantitative easing unchanged and held its benchmark interest rate at 0.5%.

Developing Economies…East Asia and the Pacific: China’s inflation picked up in April to 2.4% (y/y), up from 2.1% in March which was driven by a jump in the cost of food, especially vegetables, after an unusually cold start to the spring. Core inflation remains subdued increasing 1.6% (y/y) in April. Even more tellingly, producer prices fell deeper into deflationary territory in April (-2.6% y/y), a six-month low.

Latin America and the Caribbean: Mexico’s inflation accelerated in April to 4.6%, up from 4.3% in March, driven by increases in food prices, exceeding the upper bound of the central bank’s 2-4% inflation target range. Core inflation remained at 3% (y/y) in April.

Middle East and North Africa: Egypt’s foreign currency reserves stood at $14.4bn at the end of April – up from a 10-year low of $13.4bn at the end of March. The reserves were boosted by $2bn in cash deposits at the central bank by Libya, without which the reserves would have dropped to $12.4bn.

Sub-Saharan Africa: South Africa’s manufacturing output fell 2.2% (y/y) in March, down from revised contraction of 2.8% in February. On quarterly basis, manufacturing output contracted by 2.2% (q/q) in the three months to March.

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