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  Daily Economic News – July 30, 2014


AUTHORS                Derek Chen (x-81602)                     Eung Ju Kim (x-85804)
                       Gerard Kambou (x-32386)



Argentine bonds surge to 3-year high on prospect of a deal to avoid the
country’s second default…U.S. GDP rebounds more strongly-than-
expected in Q2…China’s consumer sentiment rises in July


Financial Markets

Argentine bonds surged to a three-year high Wednesday on speculation that government officials and
holdout creditors are nearing a deal to avert the country’s second default in 13 years. Argentine dollar
bonds maturing in 2033 rose 10 cents on the dollar to 95.5 Wednesday morning in New York, the highest
since November 2010. The yield fell to 8.8% from 10.1%. Argentine stocks traded in the U.S. also rose,
gaining as much as 31%, while the country’s benchmark Merval stock index advanced 4.8% in Buenos
Aires.

Boosted by the stronger-than-expected U.S. GDP growth in Q2 the U.S. dollar index, which measures the
dollar against a basket of six major currencies, hit a 10-month high of 81.493 before retreating to 81.459;
while the two-year bond yield, among the most sensitive to interest rate policy, rose 2 basis points to
0.57%, its highest level in more than three years. Longer-term U.S. bond yields also firmed but remained
not for far from their lows for the year, with the 10-year yield adding 6 basis points to 2.53%.


High Income Economies

U.S.’s GDP growth accelerated to a more-than-expected 4.0% annual pace in the second quarter of
2014, exceeding economists’ forecast for a 3.0% growth, after falling by a revised 2.1% in the first
quarter. The increase in GDP was driven mainly by consumer spending and an upturn in business
inventories. Real personal consumption expenditures accelerated at a 2.5% percent pace after slowing to
1.2% in Q1; while inventories contributed 1.66 percentage points to growth after chopping off 1.16 points
in Q1. Positive contributions to growth also came from business investment, government spending and
investment in home building. Exports of goods and services grew 9.5%, reversing Q1's 9.2% decrease;
while imports of goods and services surged 11.7% from a 2.2% growth in Q1.

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Spain’s GDP grew at its fastest pace in more than six years in the second quarter of 2014, expanding a
seasonally adjusted 0.6%, more than the central bank ’s expectation for a 0.5% growth, following a 0.4%
expansion in Q1 as strong domestic demand offset weakening external demand. This marked the third
straight quarter of GDP growth. On an annual basis, GDP grew 1.2% in Q2 compared with a 0.5%
growth in Q1, faster than the central bank ’s forecast for a 1.1% expansion.

Japan’s industrial production tumbled 3.3% (m/m) in June, more than economists ’ forecast for a 1.2%
decline and the most since the March 2011 earthquake, after rising 0.7% (m/m) in May as the
manufacturing sector cut back in response to a slump in consumer spending and exports remained weak.
Year-on-year, industrial production grew 3.2% in June up from 1.0% in May, but slower than economists ’
forecast for a 5.2% expansion


Developing Economies

East Asia and Pacific
China’s consumer sentiment rose in July with the Westpac-MNI consumer sentiment index climbing to
114.8 from up from 112.6 in June. However, consumer confidence still remained lower than the average
of 118.9 seen over the last 12 months.

Thailand’s industrial production contracted further in June, decreasing 6.6% (y/y), more than economists ’
forecast for a 3.7% fall, following a 4.1% (y/y) decline in May. In April, industrial production fell 3.9%,
compared with a 10.4% contraction in March.



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