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Prospects Daily: Brazil real extends losses on turmoil in Middle East and Ukraine, U.S. durable goods orders rise more-than-expected in June, Mexico’s trade surplus declines

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Financial Markets

The U.S. dollar extended gains, rising to a fresh 8-month high against the euro on Friday as durable goods orders rose more-than-expected and a gauge of German business confidence fell more than economists’ forecast hurt by geo-political tensions. The dollar rose 0.2% to $1.3433 per euro after advancing to $1.3428 the strongest since November 21.

Brazil’s real fell for a third consecutive day as the intensifying conflict in the Gaza Strip and geopolitical tensions in Ukraine over the downing of a Malaysian Airlines jetliner drove the demand for emergency-market assets down. The real fell 0.2% to 2.2263 in mid-morning trading in Sao Paulo. Swap rates, a measure of interest rate expectations, declined 5 basis points to 11.04% on the contract maturing in January 2016 after moving up 10 basis points since July 18.

High Income Economies

U.S.’s durable goods orders rose by 0.7% in June, exceeding economists’ forecast for a rise of 0.5%, after dropping 1.0% in May. Excluding orders for transportation equipment, durable goods orders rose 0.8% rebounding from a 0.1% drop in May. Non-defense capital goods orders excluding aircrafts, a measure of business spending, rose 1.4% after declining 1.2% in May, outpacing economists’ expectations for an increase of only 0.5%.

Preliminary data showed that U.K.’s GDP grew by 0.8% (q/q) in the second quarter of 2014, the same as in the first quarter, which meant than total economic output was 0.2% bigger than its previous peak in the first quarter of 2008. GDP growth in the second quarter was driven by the services sector, which grew 1.0% (q/q) following a 0.8% increase in Q1. Manufacturing grew by just 0.2%, its weakest growth in more than a year while construction shrank by 0.5%. Year-on-year, GDP grew by 3.1% in the second quarter, its fastest pace since the last quarter of 2007, up from a 3.0% expansion in Q1.

At its meeting of July 25th 2014, Russia’s central bank hiked the benchmark one-week repo rate by 50 basis points to 8.0%, citing an increase in inflation risks due in part to geopolitical tensions. The decision aimed at slowing consumer price inflation to 6.0-6.5% in 2014 and to the medium-term target level of 4%.

Developing Economies

Mexico’s trade surplus fell to US$423.7 million (y/y) in June from US$920.1 last year as imports grew faster than exports. Year-on-year, exports grew 7.7% in June following a 4.7% increase in May, its biggest gain since October 2012. Imports rose 9.6% (y/y), accelerating from a 2.8% (y/y) gain in May. On a monthly basis, exports fell by a seasonally adjusted 0.04% while imports declined 0.36% resulting in a seasonally adjusted trade deficit of US$404 million, down from US$511 million in May. In the first six months of 2014, Mexico’s trade balance posted a deficit of US$249.2 million, as exports grew 4.2% (y/y) and imports rose 3.2% (y/y).

Turkey’s trade deficit narrowed to US$7.85bn (y/y) in June down from US$8.61bn in June of last year, less than economists’ forecast for a deficit of US$7.0bn. Year-on-year, imports fell 1.3% much less than the 10.2% (y/y) decline recorded in the previous month. Boosted by a surge in sales to the European Union, exports grew 4.2% (y/y) following a 3.3% gain in May. On a monthly basis exports fell by a seasonally and calendar adjusted 0.1% while imports declined 1.2%.

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