74735

                      DECPG Daily
        Economics and Financial Market Commentary
                   December 18, 2012
           Allen Dennis (84812), Eung Ju Kim (85804), Sanket Mohapatra (37721),
                            Ekaterine T. Vashakmadze (36773)
  You’ll find recent issues of this Daily and lots of other current analysis and high-frequency data at our
                                    website: http://www.worldbank.org/gem

Financial Markets…Global stocks advanced on Tuesday, with the benchmark MSCI
world equity index gaining 0.6%, as growing optimism on U.S. budget talks boosted
investor confidence. The MSCI Asia Pacific Index rose 0.5%, heading for the highest
closing in nine months, and the Stoxx Europe 600 Index climbed 0.3%, extending its
year-to-date gains to 13%. U.S. equities also opened higher in early morning trade with
the S&P 500 Index rising 0.2%.
Credit-default swaps on U.S. corporate debt slid for a second day, with the benchmark
Markit CDX North American Investment Index sliding 0.9 basis points to 91 bps, amid
signs that progress was being made on negotiations over the so-called fiscal cliff. The
credit-swap index generally declines as investor sentiment improves and climbs as it
deteriorates.
Spanish government bonds rose on Tuesday, with 2-year note yields sliding as much as
6 basis points to a two-week low of 2.84%, as borrowing costs declined at a new
auction of €3.52 billion ($4.6 billion) Treasury bills. The Spanish Treasury sold 84-day
bills at an average yield of 1.195%, down from 1.254% at last month’s auction, and 183 -
day bills at 1.609%, compared with 1.669% at a previous auction in November.
High-income Economies…UK consumer price inflation remained unchanged at 2.7%
(y/y) in November, the same rate as October. However, prices rose 0.2% (m/m) as
increases in food and gas prices and electricity costs were partially offset by cheaper
fuel costs. Annual inflation remains above the Bank of England’s 2% target. The core
inflation rate remained steady at 2.6%.
The US current account deficit narrowed to a two-year low of $107.5 billion (2.7% of
GDP) in the third quarter of 2012 from $118.1 billion (3% of GDP) in the second quarter.
The decrease was mainly accounted by a fall in the goods trade deficit, as goods
imports fell by a larger margin (to $567.3 billion from $579.9 billion) than the decline in
goods exports (to $393.4 billion from $394.1 billion).
Ireland’s GDP grew at about a 0.8% (q/q) annualized pace in the third quarter,
compared to an upwardly revised 1.6% annualized pace in the second quarter. On a
year-on-year basis, however, GDP rose 0.8% (y/y) in the third quarter following a 1.1%
(y/y) decline in the second quarter.
Sweden’s central bank cut its benchmark interest rate to 1% from 1.25% in an effort to
counter the impact of the Euro Area debt crisis on the Swedish economy.


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Hungary’s central bank cut its interest rate further to 5.75% from 6%, its fifth rate cut this
year in a bid to support stalled growth. Inflation fell to 5.2% in November, down from 6%
the previous month, but is higher than the central bank’s 3% target. The central bank
has cut interest rates by a cumulative 125 basis points this year.
Developing Economies… Foreign direct investment in China fell 5.4% (y/y) in
November to $8.29 billion and FDI inflows in the first 11 months of 2012 fell 3.6% (y/y)
to $100 billion. Meanwhile, non-financial investment abroad rose 25% in the first 11
months of 2012 to $62.5 billion.
In November, China’s new home prices increased in 53 out of the 70 cities tracked by
the government, compared with 35 in October.
India's central bank held its policy repo rate unchanged at 8.0%, along with its Cash
Reserve Ratio (CRR). India's wholesale price inflation rate eased to 7.24% in November
from October's 7.45%, but remains above the bank’s 5 -6% comfort level in the absence
of a formal inflation target.
Turkey's central bank cut its benchmark one-week repurchase rate by 25 basis points to
5.5%, but kept its short term rates steady. The overnight borrowing rate, which forms
the bottom of Turkey’s interest rate corridor, was kept at 5% and the overnight lending
the rate, the ceiling, was kept at 9.0 percent. This decision to cut key policy rate was
made in the context of moderating inflation to support weakening growth. Inflation rate
fell to 6.4% (y/y) in November. It is projected to remain above the bank’s 5% target due
to higher administered prices.


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