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Prospects Daily: U.S. equities edge higher on U.S. consumer spending and inflation data, U.S. Fed Chief and Bank of England hint at prolonged low short-term rates, South Africa’s headline inflation slows for the second month in a row

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Financial Markets…U.S. equities edged higher in morning trading Wednesday as encouraging data on U.S. consumer spending and inflation in October diminished expectations for Fed’s December tapering. The S&P 500 gained 0.2%, after climbing as much as 0.4% earlier, and the Dow rose 0.1%. Investors are awaiting a release of the Federal Reserve’s recent policy meeting minutes that may provide some clues on the timing of reduction in the monthly stimulus program.

Thailand’s Baht depreciated versus the dollar the most in more than a week amid lingering concerns over political turmoil and the weak economic outlook. The Baht weakened 0.3% to 31.68 per dollar, the steepest drop since November 11, after touching 31.74 earlier, the lowest level since September 18. Moreover, the country’s benchmark 10-year bonds declined for a third day with the 10-year bond yield rising 4 basis points to a two-month high of 4.13%.

High Income Economies…U.S. Federal Reserve Chairman Ben Bernanke said Tuesday that short-term interest rates may stay near zero "well after" the jobless rate falls below 6.5%, the latest effort by the central bank to assure markets that rates will remain low even as it contemplates pulling back on its $85 billion-a-month bond-buying program. "The target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after the unemployment threshold is crossed and at least until the preponderance of the data supports the beginning of the removal of policy accommodation,” he said.

Similarly, in the minutes of the November meeting of the Monetary Policy Committee, the Bank of England hinted it's preparing to modify its forward guidance on monetary policy, suggesting there were already grounds not to raise interest rates when unemployment falls to its threshold level of 7.0%. The meeting unanimously kept interest rates on hold at 0.5% and left the stock of assets purchased under the quantitative easing scheme constant at £375bn.

Driven by a rebound in auto sales, U.S. retail sales rose more-than-expected by 0.4% (m/m sa) in October, while revised data showed that sales were unchanged in September. Auto sales jumped 1.3% after falling 1.2% in September. Excluding auto sales, retail sales rose by a more modest 0.2%, compared to a 0.3% increase in September. On a three-monthly annualized basis, total retail sales and retail sales excluding autos increased in October by 3.3% (3m/3m saar) and 3.1%, respectively, compared to September’s respective increase of 4.69% and 3.8%.

Japan’s trade deficit in October of 1.09 trillion yen nearly doubled from a year earlier of 556 billion yen, as growth in exports was overwhelmed by soaring costs for imported fuel in the wake of the nuclear industry’s shutdown. Imports climbed 26.1% (y/y), while exports gained 18.6%.

Chile's central bank cut its benchmark interest rate by a quarter of a percentage point to 4.5% as the country looks to revive its flagging growth. The move, a second consecutive cut, comes on the heels of disappointing GDP and balance of payments data released on Monday.

Developing Economies… East Asia and Pacific: Moody’s Investor Services upgraded its outlook on Malaysia’s economy to Positive from Stable, on improved prospects for stabilizing the country’s debt dynamics and for reducing the subsidy bill. The agency assessed that the revival of the fiscal program, which includes broadening the tax base and reducing the government’s reliance on petroleum revenues, would stabilize the country’s debt dynamics by reducing the fiscal deficit. The agency also assessed the government’s subsidy rationalization initiative as the right step toward reducing subsidy payments, which have accounted for an increasingly large share of government spending. In addition, it projected that Malaysia’s current account will remain in a structural surplus, which will help sustain favorable financing conditions for the government.

Europe and Central Asia: Hungary’s wage growth increased at a fast pace in September. Average gross monthly wages rose 5% (y/y), following gains of 4.7% in August and 2.1% in July. Driving the rapid wage growth in September, gross earnings in the business sector increased 3.8% (y/y), gross wages in budgetary institutions rose 8.4% (y/y) and gross wages in non-profit institutions grew by 8.1 (y/y). Net monthly wages rose 6.4% (y/y), following an increase of 6.2% in August. In the year to September, gross monthly wages grew 3.6% from the corresponding period in the previous year.

Sub-Saharan Africa: South Africa’s annual headline inflation, measured by the consumer price index, slowed for the second month in a row to 5.5% (y/y) in October from 6% (y/y) in September owing to a fall in petrol prices. The food and non-alcoholic beverages index eased to 4.3% (y/y) from 5.9% (y/y) in September and the transport index slowed to 6.2% (y/y) from 6.9% (y/y); while the communication index increased to 2.2% (y/y) from 1.75 (y/y). Month-on-month, the CPI eased to 0.2% in October from 0.5% in in September.

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