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Prospects Daily: Dollar rises to highest level in seven weeks on optimism about the U.S. recovery…OECD area consumer price inflation steady at 2.1% in June…South Africa’s jobless rate rises further to 25.5% in Q2

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Financial Markets

Emerging-market stocks advanced to an 18-month high as investors waited for the start of a meeting of the Federal Reserve today. The MSCI Emerging Markets Index gained 0.2% to reach 1,081.64 in mid-afternoon trading in London, heading for its highest close since January 2013. The gauge has gained 7.9% this year; in comparison, the MSCI World Index has risen 5.4% in 2014.

The U.S. dollar rose to its highest level in seven weeks against major currencies on optimism that the U.S. recovery is gathering pace as the Federal Reserve convenes to discuss the pace of raising interest rates. The dollar rose for an eighth day against the Japanese yen, the most since October 2012, gaining 0.2% to 102.05 yen. The dollar also rose 0.2% against the euro to $1.3414 per euro. Hungary’s forint led the drop among a group of 24 developing-country currencies, declining 0.8%, followed by Russia’s ruble and Turkish lira which slipped 0.5%. Only three currencies posted gains against the dollar, led by the South Korean’s won which rose 0.2%. 

High Income Economies

Japan’s seasonally adjusted unemployment rate rose 3.7% (m/m) in June, higher than economists’ forecast for 3.5% (m/m) the same as in May. The job-to-applicant ratio came in at 1.10, exceeding slightly expectations for a ratio of 1.09. The participation rate was steady at 59.9%. Year-on-year, the number of employed persons rose 0.9%, or 560,000, to 63.89 million; while the number of unemployed declined 5.8%, or 150,000, to 2.45 million.

The Organization for Economic Co-operation and Development (OECD) area’s annual consumer price inflation was steady in June at 2.1%, the same as in May. Excluding energy and food prices which rose 3.1% (y/y) and 2.1% (y/y) respectively, inflation was broadly stable at 1.9% (y/y). Month-on-month consumer prices rose 0.1% in June. In the G-20 area, which includes emerging market and other non OECD economies, consumer price inflation slowed to 2.9% in June from 3.0% in May; and in the G-7 area, which consists of the developed economies, consumer price inflation remained stable at 2.0%.

U.S.’s consumer confidence improved for the third consecutive month in July with the consumer confidence index surging to 90.9, its highest level in almost seven years, up from an upwardly revised 86.4 in June, beating expectations. Economists’ forecast was for the index to inch up to 85.4 from the 85.2 that was originally reported for June.

Developing Economies

East Asia and Pacific

Moody’s Investor Service upgraded on Tuesday Vietnam’s issuer and senior unsecured bond ratings by one notch to B1 from B2 with a stable outlook, the country’s first upgrade since July 2005, citing Vietnam’s macroeconomic stability, strengthening balance of payments and external payments position and easing in the contingency risks from the banking sector. Vietnam’s rating is four notches away from investment grade. Standard & Poor’s has a ‘BB-‘rating on Vietnam.

Sub-Saharan Africa

South Africa’s unemployment rate increased further to 25.5% in the second quarter of 2014, up from 25.2% in the first quarter, the highest rate since the second quarter of 2011 when the jobless rate stood at 25.6%, amid labor strikes in the manufacturing and mining sectors. The number of unemployed persons increased by 87000 (q/q) to 5.2 million, the highest level since 2008, and by 182,000 (y/y). Notably, 93,000 jobs were lost annually in manufacturing while the farming sector shed 73,000 jobs. The number of employed persons increased by 39,000 (q/q) in the second quarter to 15.09 million and by 403,000 compared to the same period last year. The labor participation rate inched up slightly to 57.3% in Q2 from 57.2% in Q1.

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