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Prospects Daily: China’s stocks post biggest monthly gain since 2012, Eurozone’s consumer price inflation slows to near 5-year low, Philippines’ central bank hikes key policy rates

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Financial Markets

China’s stocks rose on Thursday, sending benchmark indexes to their highest monthly gain since December 2012, amid optimism government stimulus will boost economic growth. The Shanghai Composite Index rose 0.9% to 2,201.56 at the close, the highest level since December 2012, for a monthly gain of 7.5%. Meanwhile the CSI 300 Index advanced 1.2% for a July gain of 8.6%, and the Hang Seng China Enterprises Index, or H-shares gauge, rose 0.2%, extending a rebound since a March low to a 21.0% monthly gain.

U.S.’s stocks fell sharply on Thursday, with the S&P 500 falling below its 50-day moving average, viewed as a sign of short-term momentum, a level it has not closed below since April 15, erasing its gains for the month of July as concerns mounted over the strength of overseas economies and ongoing tensions with Russia. Weak U.S. data also contributed to the bearish tone as jobless claims rose more than expected and the Chicago business barometer fell unexpectedly in July to its lowest level since June 2013.

High Income Economies

Eurozone’s annual consumer price inflation slowed to 0.4% in July, its lowest level since October 2009, following a 0.5% increase in June according to a flash estimate from Eurostat, underscoring concerns about a risk of deflation. Expectations were for the inflation reading to remain unchanged at 0.5% in July. Meanwhile core inflation, excluding energy, food, alcohol and tobacco, was steady at 0.8% (y/y). A breakdown of the CPI showed that energy prices fell 1.0%, and prices of food, alcohol and tobacco dropped 0.3%; while cost of services rose 1.3% and prices of non-energy industrial goods remained flat.

U.S.’s first-time jobless claims rose to 302,000 in the week ended July 26th, an increase of 23,000, from the previous week’s revised level of 279,000, which was a fourteen-year low. Economists’ forecast was for jobless claims to rise to 301,000 from 284,000 originally reported for the previous week. Meanwhile, the less volatile four-week moving average fell by 3,500 to 297,250, its lowest level since hitting 296,000 in April 2006. At the same time, continuing claims, a reading on the number of people receiving ongoing employment assistance rose to 2.539 million in the week ended July 19th from the previous week’s revised level of 2.508 million; while the four-week moving average of continuing claims declined by 9,000 to 2.535 million from the previous week, hitting its lowest level since October 2007.

Developing Economies

East Asia and Pacific

At its meeting of July 30th 2014, Philippines’ central bank raised its key policy rates for the first time in more than three years, citing signs of inflation pressures and elevated inflation expectations. The overnight borrowing rate or reverse repurchase facility and overnight lending rate or repurchase facility were raised by 25 basis points to 3.75% and 5.75%, respectively. Meanwhile, the rate on special deposit accounts was left unchanged at 2.25% and the reserve requirements ratio was kept steady at 20%.

Latin America and Caribbean

Brazil’s producer price inflation slowed to 5.04% (y/y) in June, its lowest level since July 2013 when it was 4.98%, after climbing 6.56% (y/y) in May. On a monthly basis, producer prices fell 0.13% after decreasing 0.26% in May.

Sub-Saharan Africa

South Africa’s merchandise trade deficit fell sharply to ZAR 0.19bn in June, more than economists’ forecast for a deficit of ZAR6.3bn, down from ZAR7.44bn in May. Contributing to this improvement, exports increased 3.7% (m/m) in June, while imports fell 5.1% (m/m). For the January to June period, the trade deficit totaled ZAR48.27bn up from ZAR35.57bn in the same period the previous year. During the period, exports rose 9.3% (y/y) while imports increased 11.3% (y/y).

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