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                      DECPG Daily
        Economics and Financial Market Commentary
                      July 24, 2013
                            Damir Cosic, Eung Ju Kim, Tehmina Khan

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Global stocks edge higher on better Euro Area and US PMI data …China
manufacturing slows further
Financial Markets…Global stock markets edged higher on Wednesday as gains in
European and U.S. equities offset a retreat in Asia shares. Europe’s benchmark stock
index rose to the highest level since May 31 amid sign of growth in the region ’s
manufacturing, while U.S. stocks opened higher this morning on strong earnings results
from technology giant Apple and positive Euro-area economic data. In contrast, most
Asian shares retreated amid renewed concerns over Chinas’ economic outlook in the
wake faster-than-expected slowdown in the country’s manufacturing activity.
U.S. Treasuries fell for a second day, with the benchmark 10-year yield rising 7 basis
points to 2.57% amid growing speculation that the Federal Reserve may scale back its
stimulus program sooner than previously expected. U.S. government bonds have
remained somewhat steady thus far this month after sliding 1.4% last month.
Meanwhile, the U.S. Treasury will auction $35 billion of 5-year notes today after selling
$35 billion of 2-year securities yesterday.
High Income Economies...The flash reading for the Euro Area composite PMI for July
rose to 50.4 from 48.7 in June. Any reading above 50.0 represents growth, and this
marks the first time that the index has crossed 50 since January 2012. Separately an
ECB bank lending survey showed that the net percentage of banks tightening credit
standards for firms in Q2 in the Euro Area remained unchanged from Q1 levels at 7%.
However, this is down substantially from the 35% reported for Q4 2011.
Within the Euro Area, output rose at the fastest rate for 5 months in Germany, with its
composite PMI rising to 52.8 from 50.4 led by a strong improvement in manufacturing
output. In France, the rate of decline eased to the slowest (48.4) seen since output
began falling in March 2012 buoyed by a return to growth in manufacturing, which
reported the largest rise in production for 17 months. Outside of the two biggest
member states, output fell only marginally posting the smallest decline since June 2011.
The US flash manufacturing PMI rose to a 53.2 reading in July from 51.9 in June. This
is the highest level in four months, led by strong improvements in new orders and
employment. Separately, new home sales jumped by 8.3% (m/m) to an annual rate of
497,000 in June.
Developing Economies…East Asia and Pacific: China’s first estimate of
HSBC/Markit manufacturing PMI fell to 47.7 this month from June's final reading of 48.2,
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marking a third straight month below the 50 mark which demarcates expansion of
activities from contraction. It was the weakest level since August 2012 thanks to weaker
new orders and faster destocking.
Europe and Central Asia: Albania’s trade deficit shrank by 28% (y/y) to ALL 20.6bn in
June, down from a shortfall of ALL 22bn in May. Exports continued their expansion at
17.2% (y/y) while imports declined 10.5% (y/y) in June.
Sub-Saharan Africa: South Africa's consumer price inflation weakened to 5.5% (y/y) in
June, the lowest level in five months, down from 5.6% (y/y) in May. Main driver of
inflation was a 7% rise in food prices.
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