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Prospects Daily: US industrial production rebounds, Flash Markit PMI suggests that Chinese manufacturing activity is expanding at a fastest pace in 14 months

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Financial Markets…The euro jumped to an eight-month high versus the yen, appreciating to 109.98 yen in earlier trading, as European leaders pledged on Friday to take further steps to tackle the region’s lingering debt crisis. The 17-nation currency also gained against the dollar, climbing 0.2% to $1.3089 and extending a weekly gain to 1.3%.

Oil prices gained on Friday, with WTI for January settlement climbing more than $1.00 a barrel in early trading, amid improving manufacturing outlook in U.S. and China, world’s first and second-largest crude oil consumers. Brent for January delivery increased as well, covering the year-to-date declines. Meanwhile, WTI price has dropped more than 15% thus far this year due mostly to limited capacity to transport surplus Canadian and US oil to the US Gulf coast.

Developing-country equities declined for the first time in eight trading days, with the benchmark MSCI Emerging Markets Index sliding 0.2% after surging 3.5% in the previous seven sessions with profit-taking by investors contributed to the loss. The developing-country stock index rose to the highest level on December 13th since April 3. Overall, the gauge has gained 14% year to date.

High-income EconomiesUS industrial production rose 1.1% (m/m) in November following a 0.7% decline in October, as the nation’s manufacturing activity is recovering from Hurricane Sandy. November increase is the biggest gain since December 2010.

US consumer price index fell 0.3% (m/m) in November, the first decline since May and followed a 0.1% rise in October. A plunge in gasoline prices (7.4%) offset increases in other areas, keeping inflation in check. On the annual basis, inflation eased to 1.8% (y/y) in November compared to 2.2% in October.

Japan’s Tankan business confidence index for large manufacturers fell to a negative 12 in December from a negative 3 in September. It marked a fifth consecutive quarter of negative reading and the lowest since March 2010. The pessimistic sentiment underlined sluggish export performance that posted a fifth month decline in October.

Developing EconomiesIndia's wholesale price index based inflation eased insignificantly to 7.24% in November from 7.45% in October. Meanwhile, the inflation rate for September was adjusted upward to 8.07% from 7.81% officially reported in October.

The preliminary results of a survey by Markit Economics suggests that China's manufacturing activity is expanding at the fastest pace in 14 months in December due to new orders. The headline HSBC/Markit purchasing managers' index rose to 50.9 in December from 50.5 in November to the highest reading in 14 months.

Pakistan's central bank cut its policy rate by 50 basis points to 9.5% as inflation pressures recede on improved food supplies. Pakistan's inflation rate fell to 6.9% in November, from 7.7% in October, reflecting a 5.3% food inflation and 8.1% non-food inflation.

The central bank of Philippines held its key interest rate steady at 5.50% indicating that the inflationary outlook is manageable and the domestic economy is accelerating on the back of a strong domestic demand supported by a buoyant business sentiment. Inflationary expectations in the Philippines are in line with the bank's 3-5% target. The headline inflation fell to 2.8% in November from 3.1% in October.

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