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Prospects Daily: World stock markets rally, Eurozone economy at near-stagnation in Q3, India’s headline inflation accelerates

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Financial Markets…World stock markets rallied on Thursday after Federal Reserve chairman nominee Janet Yellen signaled the U.S. central bank will keep its loose monetary policy until she see improvements in an economy that is running below potential. The MSCI Asian-Pacific shares advanced 0.7% with Japan’s Nikkei 225 index rising 2.1% to a six-month high, and Europe’s Stoxx 600 index rose 0.4% but weaker-than-expected Eurozone’s growth in Q3 dented the market’s earlier gains. Developing-country shares climbed for the first time in 11 days, snapping the longest rout since 2006, with benchmark stock indexes in Turkey, Hungary, Russia, and Poland each gaining at least 1.1%. U.S. equities carried on the momentum in morning trade, with both the Dow and the S&P 500 extending their record highs reached yesterday.

Japan’s yen weakened 0.7% against the dollar to 99.93, dropping below 100 per dollar for the first time in two months, after a government report showed the country’s economy had slowed more than expected in the third quarter. The Japanese currency also depreciated versus the euro, falling 0.5% to 134.48 per euro. Meanwhile, the dollar gained against the 10 major global currencies amid growing optimism the Federal Reserve will maintain its accommodative monetary for the foreseeable future.

High Income Economies…U.S. first time jobless claims fell less-than-expected to 339,000 in the week ended November 9th, a decrease of 2,000 from the previous week's revised figure of 341,000. The modest drop still reflects the fifth consecutive decrease. The less volatile four-week moving average fell to 344,000, a decrease of 5,750 from the previous week's revised average of 349,750. Meanwhile, continuing claims, a reading on the number of people receiving ongoing unemployment assistance, came in at 2.9 million in the week ended November 2nd, unchanged from the preceding week's revised level.

With imports increasing to the highest level in 10 months, the U.S. trade deficit widened in September to $41.8 billion, an 8.0% increase from the revised $38.7 billion in August. It was the largest trade gap since May and marked the third straight month that the deficit has risen since hitting a four-year low in June. Exports, which hit a record high in June, slipped for the third straight month, dipping 0.2% (m/m) to $188.9 billion, with sales of commercial aircraft and autos both down. Partly driven by a 3.4% jump in automotive imports, imports rose 1.2% to $230.7 billion, the highest level since November.

According to Eurostat flash estimates, Eurozone GDP expanded 0.1% in Q3 (q/q sa), down from the 0.3% growth seen in Q2. This was the second consecutive expansion and matched economists' expectations. Before recovering from recession in the three months to June, the region continuously contracted for six straight quarters. In tandem with the very low consumer price inflation, the latest GDP reading adds to the pressure on the ECB to take further stimulative action following its November 7 interest rate cut to 0.25 percent from 0.50 percent. Within the Euro Area, Cyprus' economy contracted the most (-0.8% q/q sa), followed by Italy and France (-0.1%). In contrast, Finland recorded the highest growth rate (0.4%), followed by Belgium and Germany (0.3% each). On an annualized basis, Eurozone GDP grew by 0.4% (q/q saar) in Q3 down from Q2’s 1.1%

The Japanese leading economic index advanced sharply by 1.2% (m/m) to 100.1 in September, following a 0.1% fall in August and a 0.3% gain in July. New orders for machinery and construction, stock prices and dwelling-units-started made the largest positive contributions. The coincident economic index, which measures the current situation, moved up 0.2% (m/m) to 96.8 in September, reversing August's 0.1% decrease. Employment and industrial production made the largest positive contributions here.

The New Zealand ANZ-Roy Morgan consumer confidence index rose 6 points to 128.4 in November. A reading above 100 indicates optimism among consumers. Households were optimistic about economic outlook and own household finances over the coming year. The current conditions index rose only 1 point to 121.4, while the future conditions index posted a nine point increase to a 133.1, the highest in three-and-a-half years.

Developing Economies…Europe and Central Asia: Boosted by a bumper harvest and exports, Romania’s economy expanded at a fast pace in the third quarter, with GDP rising at the annualized rate of 4.1% up from 1.5% in the same quarter in 2012; and higher than the consensus forecast of a 3.5% growth. Quarter-on-quarter, the economy grew by 1.6%, seasonally adjusted, in the third quarter.

Hungary’s GDP grew at the annualized pace of 1.2% in the third quarter, up from 0.5% in the same quarter the previous year, driven by the agriculture, manufacturing, and construction sectors. Quarter-on-quarter, the economy grew at the seasonally adjusted pace of 0.8% in the third quarter, from 0.4% in the previous quarter.

South Asia: India’s annual headline inflation, measured by the wholesale price index, rose to an eight-month high of 7% in October from 6.4% in September on account of higher prices of fuel and manufactured goods. The food price index slowed to 18.2% (y/y) from 18.4% (y/y) in September; while non-food inflation jumped to 6.8% (y/y) from 5.2% in September. Energy costs edged up 10.3% (y/y) from 10.0% from September; and prices of manufactured goods climbed to 2.5% (y/y) from 2% in September. Month-on-month, the wholesale price index rose 0.3%.

Sub-Saharan Africa: Nigeria’s annual headline inflation, measured by the consumer price index, slowed for the third straight month to a 5-year low of 7.8% in October on the continuing decline in food prices. Food prices eased for the third consecutive month to 9.2% (y/y) in October, down from 9.4% in September. Core inflation, which excludes prices of volatile agricultural products, continued to rise, advancing 7.6% in October, up from 7.4% in September. Month-on-month, prices remained unchanged at 0.75%.

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