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Prospects Daily: Russian stocks and bonds slump amid growing tension with Ukraine, U.K. industrial production disappoints, India’s exports fall in February

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Financial Markets…Brazilian state-run oil company Petrobras sold $8.5 billion of international bonds yesterday, as the company continued to raise funds for its massive investment plan (some $221 billion over the next five years). The transaction comprised of six tranches with four different maturities. Petrobras’ bonds accounted for 40% of total bonds sold by Latin American sovereign and corporate borrowers thus far this year. The company also issued record-breaking $11 billion worth of debt last May.

Russian stocks and bonds slumped on Tuesday amid escalating tension in Ukraine’s Crimea, while the country’s currency inched up in line with other developing-country currencies. Russia’s Micex Index fell 2.2% and government bonds due in February 2027 declined for a third day, lifting the yield to 8.91%, the highest level since June 2012. Russian financial assets are extending last week’s sell-off as diplomatic efforts to resolve the Crimea standoff hung in the balance. Meanwhile, the Russian ruble gained 0.2% versus the dollar to 36.41 and strengthened 0.3% against the euro to 50.43, as exporters with revenue stream dominated in foreign-currency prepared to pay taxes.

High Income Economies…As severe weather conditions hampered oil production, U.K. industrial output came in below expectations edging up 0.1% (m/m sa) in January, following December's 0.5% rise. At the same time, manufacturing output topped expectations growing 0.4% with broad based expansion in most sub-sectors offsetting a sharp contraction in pharmaceutical products. On a three monthly annualized basis, industrial production increased 2.4% (3m/3m saar) in January, following December’s 1.9% growth.

Driven by exports and a marginal recovery in investments, Italy returned to growth in Q4 2013 as GDP was confirmed to edge up 0.1% (q/q sa), following Q3’s decline of 0.1%. Consumption expenditure was unchanged, gross fixed capital formation increased by 0.9%, imports by 0.2% and exports by 1.2%. On the production side, agricultural output expanded 0.8% and industrial production excluding construction increased 0.1%. Services showed no growth and construction contracted 0.7%. On an annualized basis, GDP increased 0.3% (q/q saar) in Q4, up from the decline of 0.5% saw in Q3.

Keeping its aggressive asset buying program in place, the Bank of Japan left its monetary policy unchanged and continued easing as a front-loaded increase in demand prior to sales tax hike helped the economy to recover moderately. The program involves expanding the monetary base between JPY 60 trillion to JPY 70 trillion annually.

Developing Economies…East Asia and Pacific: Philippines’ export growth slowed for the second consecutive month in January, rising 9.3% (y/y), compared with 15.8% (y/y) in December and 18.9% (y/y) in November 2013. Leading the exports, shipments of electronic products rose 22.1% in January, slowing from a 26.2% increase in December. Month-on-month exports fell 4.7% in January.

Latin America and the Caribbean: Brazil’s industrial production rose 2.9% in January (m/m) after contracting by 3.5% (m/m) in December. On an annual basis, however, industrial production shrank 2.4% following a 2.3% (y/y) decrease in December.

South Asia: India’s merchandise exports fell notably in February, decreasing 3.7% (y/y), the first year-on-year decline in 8 months. Imports declined sharply, falling by 17.1% (y/y), driven by lower oil and non-oil imports. Consequently, the trade balance recorded a deficit of US$8.1bn, which was lower than the deficit of US$14.1bn recorded last year.

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