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Prospects Daily: U.S. T-bill yields hit highest levels since August 2011, New Zealand business sentiment at 14-year high, Indonesia keeps key benchmark interest rate unchanged

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Financial Markets…U.S. short-term government bonds have been sold, with yields on one-month Treasury bill climbing to their highest levels since August 2011 on Tuesday, as investor concern has intensified over the prospect of U.S. debt default.  The 1-month T-bill rates rose to 0.22% today, rising above 1-month London interbank rate (0.17% in earlier trading) for the first time in at least 12 years.  Meanwhile, the benchmark 10-year bond yield was down slightly at 2.63%.
Developing-country stocks jumped to two-week highs as Indian central bank eased liquidity crunch.  The MSCI Emerging Market Index climbed 0.6% to the highest levels since September 24 with Indian stocks rising to the strongest level in nearly three weeks.  The MSCI index has advanced 2.3% thus far October, extending a gain of 5% in the third quarter. Nevertheless, developing-country shares have declined 4.2% this year, compared with a 15% gain for developed-market stocks.

High Income Economies…New Zealand's business sentiment, according to the New Zealand Institute of Economic Research’s general business outlook index for Q3 climbed to 38, a 14-year high, from 32 in Q2.  32% of firms expect business conditions to improve over the next six months, up from the 30% in Q2 and the highest reading since March 2010.

Due to a fall in demand from the Eurozone, German factory orders declined by 0.3% (m/m) in August, compared to the 1.9% drop seen in July.  Domestic orders advanced 2.2% from July, which was offset by a 2.1% in foreign orders. Orders from Eurozone were down 2.9%.  At the same time, exports rebounded with a 1% (m/m) gain, reversing July's 0.8% fall.  Imports rose 0.4%, slightly faster than the 0.3% increase seen in July.  Consequently, the trade surplus widened to EUR 15.6 billion in August from EUR 15.0 billion in July.

The U.K. labor market has strengthened further according to the Recruitment and Employment Confederation (REC) and KPMG Report on Jobs.  Permanent staff placements substantially rose in September with the pace only slightly slower than July’s 40-month high.  Similarly, temp billings growth was close to the 15-year high seen in August.  Job vacancies growth was similar in pace to that in August, the fastest for over six years.  On wages, permanent salary inflation quickened slightly, reaching its sharpest rate since February 2008.  Temp pay inflation also accelerated, with the latest rise only marginally slower than July’s five-and-a-half year high.

Developing Economies…East Asia and Pacific: Indonesia’s central bank decided today to keep its key benchmark interest rate, the BI rate, unchanged at 7.25%, noting that pressure has eased on the rupiah owing to lower inflationary pressures and the trade balance has improved. The deposit facility rate and lending facility rate were also left unchanged at 5.5% and 7.25%, respectively.
 
Europe and Central Asia: Turkey’s industrial production recorded a modest decline in August, falling 0.1% (y/y) from the same month the previous year.  Contributing to this downturn, production in the mining and quarrying sector fell 7.2% (y/y) and production and supply of electricity, gas, steam and air conditioning fell 0.7% (y/y). Manufacturing output increased by 0.6% (y/y).
 
Sub-Saharan Africa: Tanzania’s annual headline inflation, measured by the consumer price index, eased to 6.1% (y/y) in September from 6.7% in August owing to a slowdown in housing and transport prices.  The cost of housing, water, electricity, gas and other fuel eased to 9.6% (y/y) from 14.3% (y/y) in August; and transport priced declined to 7.8% (y/y) from 9% (y/y) in August. The food and non-alcoholic beverages index was unchanged at 6.5% (y/y).   Core inflation, which excludes food and energy, eased to 5.8% (y/y) in September from 6.2% in August.
 
In contrast, Mozambique’s annual headline inflation, also measured by the consumer price index, accelerated in September, rising to 4.5% (y/y), due to an increase in food prices.
 

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