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Prospects Daily: US Treasuries fall after strong job data, US private-sector employment increases more than expected in November, Growth in China’s services industry ease slightly

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Financial Markets…U.S. Treasuries fell on Wednesday, with the benchmark long-term yield rising to a near 3-month high, after a larger-than-expected rise in U.S. private-sector payrolls prompted speculations the Federal Reserves will scale back its stimulus program as soon as this month or next. The U.S. 10-year bond yield widened as much as 7 basis points to 2.84% in morning trade, the highest level since September 18. The loss was somewhat limited as investors positioned themselves for the official non-farm payrolls figures later this week that could be a key element in the Fed’s decision for when it will start to taper its bond-purchase stimulus.
 
Developing-country stocks weakened to a three-week low after robust U.S. jobs data bolstered the Fed’s tapering bets. The benchmark MSCI Emerging-Market Index fell as much as 0.6% to the lowest level since mid-November, extending its three-day loss to 2%. The gauge has declined 5.5% this year, compared with a 20% gain for the MSCI mature-market stock index. Benchmark stock indexes in the Czech Republic, Indonesia, the Philippines and South Korea decreased at least 1.1%, while Indian shares dropped 0.7%. Emerging-market currencies also weakened with South Africa’s rand gearing for the weakest level against the dollar since 2009.
 
High Income Economies… Following an upwardly revised increase of 184,000 jobs in October, U.S. private sector employment added 215,000 jobs in November, which is the largest monthly increase in a year, despite concerns over the government shutdown and brinkmanship over the treasury debt limit.  Led by trade/transportation/utilities sector, service-providing industries added 176,000 jobs in November following the addition of 156,000 jobs in October.  Professional/business services employment also saw notable growth.  Employment at goods-producing industries also rose by 40,000 jobs in November after increasing by 29,000 jobs in October, with construction and manufacturing sectors both increasing by 18,000 jobs.

Due to a sizable increase in the value of exports, the U.S. trade deficit narrowed to $40.6 billion in October from a revised $43.0 billion in September.  The value of exports jumped 1.8% (m/m), outpacing a modest 0.4% increase in the value of imports.
According second estimates from Eurostat, Eurozone GDP rose by 0.1% (q/q sa) and by 0.2% in the EU28 during Q3 compared to Q2, compared to Q2’s growth rates of +0.3% and +0.4%, respectively.  Among the member states: Romania (+1.6%) and Latvia (+1.2%), Hungary and the United Kingdom (both +0.8%), recorded the largest increases while Cyprus (-0.8%), the Czech Republic (-0.5%), France and Italy (both -0.1%) registered decreases.  For the Eurozone, consumption rose by 0.1%, gross fixed capital formation increased by 0.4%, exports rose by 0.2%, and imports rose by 1.0%.  On an annualized basis, Eurozone GDP increased by 0.3% (q/q saar) in Q3 compared to Q2’s increase of 1.2%.
At 51.7 in November, down from 51.9 in October, the final Markit Eurozone PMI Composite Output Index signaled growth of economic activity for the fifth consecutive month but with an easing in the rate of expansion for the second month running.  The final Eurozone Services Business Activity Index also posted lower at 51.2 down from October’s 51.6.
Driven by increases in new orders and new export orders, SABB HSBC Saudi Arabia PMI posted 57.1 in November, up from a reading of 56.7 in October.  The increase signaled a sharp rise in activity at non-oil producing private sector companies, with the pace of expansion accelerating since October.
 
Developing Economies… East Asia and Pacific: China’s HSBC/Markit Purchasing Managers’ Index for the service sector, a gauge of China’s service sector performance, declined slightly to 52.5 in November from 52.6 in October. The new business sub-index saw its weakest growth in four months; while employment levels at service providers increased for the third consecutive month.  Notwithstanding the increased hiring by service providers, the weak growth in new business received by service providers, suggests that the underlying growth momentum in China’s service sector has started to soften. Meanwhile, the composite output index, which measures business activity in services and manufacturing, increased from 51.8 in October to 52.3 in November, reaching its highest level in eight months. Contributing to this improvement, new orders increased for the fourth consecutive month at the composite level, while employment remained broadly unchanged from the previous month.
 
Europe and Central Asia:  Bulgaria’s revised GDP growth figures show that in the third quarter of 2013 the economy grew at 0.5% (q/q), slightly lower than the flash estimate of 0.6% announced earlier, but higher than the 0.1% (q/q) decrease recorded in the second quarter. GDP growth in the first quarter was modest, at 0.1% (q/q). Contributing to the third quarter improvement, final consumption expenditure rose 0.2% (q/q), gross capital formation increased by 0.1% (q/q), and exports of goods and services expanded by 3.5% (q/q). On an annualized basis, GDP grew 0.7% in the third quarter, slightly lower than the flash estimate of 0.8% announced earlier by the government, but higher than the 0.2% (y/y) growth recorded in Q2.
 
By contrast, Romania’s GDP growth accelerated in the third quarter, expanding at the annualized pace of 4.1%, which matched the flash estimate, following a 1.5% (y/y) growth in the second quarter.  Supporting the third quarter GDP growth, final consumption expenditure rose 0.6% (y/y) and exports increased by 19.1% (y/y), while gross fixed capital formation decreased by 4% (y/y). Quarter-on-quarter, GDP grew at the seasonally adjusted rate of 1.6% in the third quarter, in line with the flash estimates, and faster than in the second quarter when GDP grew at 0.8%.
 
Latin America and the Caribbean: Brazil’s HSBC/Markit seasonally adjusted Purchasing Managers’ Index for the service sector increased slightly to 52.3 in November from 52.1 in October, signaling a modest expansion of activity in Brazil’s service sector. Underlying this modest improvement, the new business sub-index rose for the fifth consecutive month, service providers increased their staff levels; and input prices paid by service providers accelerated, reflecting higher interest rates and costs of raw materials. Meanwhile, Brazil’s composite output index decreased to 51.8 in November from 52 in October.
 
South Asia: India’s HSBC/Markit seasonally adjusted Purchasing Managers’ Index for the service sector rose marginally to 47.2 in November from 47.1 in October and remained below the 50-mark, indicating continued contraction in India’s service sector. Meanwhile, the composite output index, a gauge of performance in both the service and manufacturing sectors, improved, increasing to 48.5 in November from 47.5 in October but remaining still below the 50-mark.  Performance in the service sector was affected by weaknesses in employment, with new work falling for the fifth consecutive month; while new orders fell across the entire private sector for the fifth consecutive month.

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