Financial Markets… European bonds and stocks advanced as data showed Euro-zone inflation unexpectedly fell to a near 4-year low in October, fueling speculation the European Central Bank (ECB) will trim interest rate to bolster growth. Expectations of ECB easing and better-than-expected earnings reports outweighed concerns over less dovish sentiment on the state of the economy from the U.S. Federal Reserve. Spanish 10-year bond yield fell below 4% for the first time since May, while the region’s benchmark German bunds rose for an eight day, posting the longest gaining streak since August 2011. Europe’s Stoxx 600 index advanced 0.3% in noon trading, heading for the highest level since 2008, and extended its monthly gain to 3.6%. In contrast, the 17-nation currency weakened the most in nine weeks against the dollar, sliding 0.7% to $1.3639.
Developing-country shares declined the most in a week as weaker-than-estimated corporate earnings and renewed concerns about Fed’s tapering of its stimulus program. The latest Fed minutes left open the possibility of QE tapering this year. The benchmark MSCI Emerging Market Index fell 0.7%, paring this month’s gain to 4.9%. Benchmark indexes in Russia and Turkey declined more than 1%, while measures in Poland and Bulgaria retreated 0.4%.
High Income Economies…U.S. first-time jobless claims dipped to 340,000 in the week ended October 26th, a decrease of 10,000 from the previous week's unrevised figure of 350,000. The four-week moving average edged up to 356,250, an increase of 8,000 from the previous week's unrevised average of 348,250. After several weeks of distortions, the Labor Department suggested that the latest numbers were clean, as California has addressed its technical issues and the federal government has reopened. Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, also climbed to 2.88 million in the week ended October 19th from the preceding week's revised level of 2.85 million.
Six major central banks are converting the existing temporary bilateral currency swap lines into permanent ones that will be tapped to boost liquidity at times of financial crisis. The new standing arrangements among the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the U.S. Federal Reserve, and the Swiss National Bank will constitute a network of bilateral swap lines. This will provide liquidity in each jurisdiction in any of the five currencies foreign to that jurisdiction, if the two central banks concerned judge that market conditions warrant such a move in one of their currencies.
Driven by falling energy prices, flash estimates for Eurozone annual inflation fell from 1.1% (y/y) in September to 0.7% in October, the lowest rate since November 2009. The slowdown was driven by a notable fall in energy prices, combined with an easing in food inflation. At the same time, the Eurozone unemployment rate increased from August’s revised figure of 12.0% to a record-high of 12.2% in September, with 19.5 million persons unemployed up by 60,000 from August.
Japan’s manufacturing Purchasing Managers’ Index (PMI) indicated a further strengthening of the Japanese manufacturing sector as it increased from 52.5 in September to 54.2 in October, the highest reading since May 2010. Output increased at the fastest pace for 46 months, whilst new order growth hit a four-year high. Backlogs of work also rose at a solid pace as manufacturers struggled to keep pace with growing demand, and stocks of purchases were depleted as a consequence. However, employment was broadly flat for a third successive month.
Developing Economies…East Asia and Pacific: Indonesia’s Ministry of Finance cut its growth forecast for 2013 to 5.8%, down 0.2 percentage points from last week’s forecast and 0.5 percentage points from the 6.3% forecast in the government budget. Higher interest rates, which were raised to attract foreign capital and reduce inflationary pressures, slower growth in China, and weak demand from industrialized countries, prompted this downward revision according to the Ministry of Finance.
Due to a negative balance in the services, income and transfer account Thailand’s current account balance moved into deficit in September, after briefly recording a surplus in August. The current account deficit amounted to US$534 million (m/m) in September compared with a surplus of US$1.28bn (m/m) in August. Following a surplus of US$1.5bn in the first quarter of 2013, Thailand’s current account balance moved into deficit in the second and third quarters, with the deficit totaling US$888 million in the third quarter.
Europe and Central Asia: Turkey’s trade deficit widened to US$7.5bn (y/y) in September, up from US$6.9bn in the previous year as imports increased. Exports increased 1.3% (y/y) to US$13bn in September. Exports of vehicles increased the most followed by boilers, machineries and mechanical appliances, and electrical machineries. The main destinations of Turkey’s exports were Germany, Iraq, the United Kingdom and Russia. Imports rose 3.5% (y/y) to US$20.7bn in September, with the top categories consisting of mineral fuels and oils, machinery and mechanical appliances, iron and steel, electrical machineries and equipment. The main origins of imports were China, Russia, Germany and Italy.
Sub-Saharan Africa: South Africa’s trade deficit increased in August to 19.05bn ZAR, up from 13.38bn ZAR in July, a seven-month high, as shipments of mineral products fell sharply. Month-on-month, exports fell 7.5% in August, with shipments of mineral products decreasing 23% (m/m), precious and semi-precious stones and metals declining 7% (m/m), base metals and articles contracting 8% (m/m/), and vegetable products falling by 12% (m/m). Imports fell 0.1% (m/m) in August. Contributing to this slight decline, imports of vegetable products decreased 25% (m/m), while imports of mineral products and base metals increased 19% (m/m) and 12% (m/m) respectively. Year-on-year, imports increased 21.9% and exports rose 24.6%.