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Prospects Daily: US Treasuries remain under pressure, ECB and BoE leave key rates unchanged, South Africa’s business confidence falls for second consecutive month

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Financial Markets…U.S. Treasury prices fell for a second day on Thursday as stronger-than-forecasted economic growth and unexpected decrease in weekly jobless claims added to speculation the Federal Reserve is likely to slow its stimulus program in coming months. The benchmark 10-year yields climbed 4 basis points to an 11-week high of 2.87%. Meanwhile, U.S. equities remained under pressure today, after falling four straight days, as the S&P 500 slide as much as 0.4% and the Dow rose less than 0.1% in the morning trade amid strong U.S. data.
 
South Africa’s currency continued to weaken as the country’s bonds experienced the worst sell-off in more than 15 years amid growing fears about the prospect of imminent reduction in U.S. monetary stimulus. The rand depreciated as much as 1% against the dollar to 10.5389, the lowest level since March 2009, as foreign investors sold South African bonds for an 11th consecutive day yesterday, the longest losing streak since June 1998. Oversea investors dumped 36.3 billion rand ($3.5 billion) of South Africa’s stocks and bonds since the beginning of November. The nation depends highly on foreign capital inflows to finance its current account deficit, which jumped to a four-year high in the third quarter. It is estimated that South Africa requires average foreign inflows of 19.5 billion rand a month to fund its current-account gap.
 
High Income Economies…Reflecting upward revisions to private inventory investment and to non-residential fixed investment, the U.S. GDP increased from an initial estimate of 2.8% (q/q saar) to 3.6%, marking the fourth consecutive quarter of expansion, and the fastest growth since the 2012 Q1.  The U.S. economy grew at 2.5% (q/q saar) in Q2.

U.S. first-time jobless claims in the week ended November 30th fell to 298,000, a decrease of 23,000 from the previous week's revised figure of 321,000.   With the unexpected decrease, jobless claims fell to their lowest level since hitting 294,000 in the week ended September 7th.  The less volatile four-week moving average fell to a two-month low of 322,250, a decrease of 10,750 from the previous week's revised average of 333,000.  Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, also fell to 2.74 million in the week ended November 23rd from the preceding week's revised level of 2.77 million.

After a surprise quarter-point reduction in November, the European Central Bank left its main refinancing rate at a record low 0.25%.  The marginal lending facility rate was also maintained at 0.75%, while the deposit facility rate was held at zero, where it has remained since July 2012.

Similarly, the Bank of England retained its key rate at a record low 0.50% and the size of monetary stimulus at GBP 375 billion.  U.K. chancellor George Osborne also released revised growth estimates for Britain's economy where GDP growth in 2013 was increased from 0.6% to 1.4%, and growth in 2014 was increased from 1.8% to 2.4%.
 
Developing EconomiesEast Asia and Pacific: Philippine’s annual headline inflation, measured by the consumer price index, accelerated to 3.3% in November from 2.9% in October, owing to higher food and housing cost. The food and non-alcoholic beverages index rose 3.9% (y/y) from 3.2% (y/y) in October; and the housing, water, electricity, gas and other fuels climbed to 1.9% (y/y) from 0.8% (y/y) in October.  In addition, transportation costs rose 0.7% (y/y) from 0.5%.  Excluding selected food and energy items, core inflation increased to 2.8% in November from 2.5% in October. Month-on-month the CPI increased by 0.4% in November after increasing by 0.1% in October.
 
Meanwhile, the producer price index declined 5.6% (y/y) in October, following a 6.7% (y/y) decrease in September. Month-on-month producer prices rose 0.3% in October.
 
Sub-Saharan Africa:  South Africa’s headline business confidence index continued to fall in November, declining for the second consecutive month to 90.8 from 91.1 in October and 91.4 in September. In November 2012, the business confidence index stood at 91.7.  The decline was broad-based, with seven of the sub-indices having a negative impact on the headline index compared with just three in October.

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