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Daily Economic News – May 22, 2014

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

U.S. Treasuries fall for second day on growing risk appetite… U.S.
jobless claims jump more-than-expected… China’s flash
manufacturing PMI rises to five-month high

Financial Markets

U.S. Treasury prices fell for a second day on Thursday as stronger-than-expected China’s manufacturing
PMI and positive U.S. data on existing home sales and factory activity boosted investors ’ risk appetite,
while more-than-expected U.S. first-time jobless claims failed to prompt safe-haven demands. Benchmark
10-year Treasury yields climbed 1 basis point to 2.544% after dropping to 2.473% last week, the lowest
level since October. U.S. government securities extended losses following minutes of the Federal
Reserve’s latest policy meeting yesterday that showed the central bank ’s officials weighed several
measures to raise short-term interest rates.

Turkish government bonds gained, sending benchmark yields to the lowest level in more than six months,
and the lira depreciated after the nation’s central bank unexpectedly lowered its key interest rate. The
yield on the nation’s two-year government notes slid 25 basis points to 8.85%, the least since November
19, and the rate has declined 125 basis points thus far this year. Turkish lira weakened 0.1% against the
dollar to 2.0973.

High Income Economies

Increasing for the third consecutive month, the Conference Board leading economic index for the U.S.
rose 0.4% (m/m) in April, following an upwardly revised 1.0% increase in March. The latest increase
matches estimates and reflects improving housing and financial market conditions.
th
U.S. first-time jobless claims jumped more-than-expected to 326,000 in the week ended May 17 up from
the previous week's revised level of 298,000. While the previous week’s figure was upwardly revised
from 297,000, it still represents the lowest number of claims in seven years. The less volatile four-week
1
moving average edged down to 322,500, a decrease of 1,000 from the previous week's revised average
of 323,500. Continuing claims, a reading on the number of people receiving ongoing unemployment
assistance, also fell to 2.65 million in the week ended May 10th from the previous week's revised level of
2.67 million.

According to second estimates the U.K. economy grew 0.8% (q/q sa) in Q1 following 0.7% rise in Q4
2013. The increase was driven by increases in household spending (0.8%) and business investment
(2.7%) suggesting that a more balanced recovery is on track. At the same time, government spending
gained only 0.1% while gross fixed capital formation advanced 0.6%. Also, exports fell by 1.0%, while
imports fell by slightly more than exports.

Developing Economies

East Asia and Pacific
China’s HSBC/Markit flash manufacturing PMI rose to 49.7 in May, a five-month high, from 48.1 in April,
beating economists’ forecast of a score of 48.3 but remaining below the 50-no change mark, which
denotes contraction. The improvement was broad-based, with new orders and new export orders both
expanding. Notably, the manufacturing output index rose to a four-month high 50.3, up from 47.9 in April.
However, backlogs of work continued to contract, and suppliers ’ delivery time lengthened after remaining
unchanged in the previous month, while hiring fell at a rapid pace.

Europe and Central Asia
nd
At its meeting of May 22 2014, Turkey’s central bank decided to lower its key benchmark rate, the one-
week repo rate, by 50 basis points to 9.5 percent, citing a decline in uncertainties and improvement in risk
premium indicators. The overnight lending rate and overnight borrowing rate were left unchanged at 12%
and 8%, respectively.

Sub-Saharan Africa
nd
At its meeting of May 22 2014, South Africa’s central bank left its key benchmark interest rate
unchanged at 5.5% for the second consecutive meeting, citing upside risks to inflation which breached
the central bank’s upper limit in April, driven mainly by supply side factors but also exchange rate pass-
through effects, and a deteriorating domestic economic growth outlook. The central bank ’s revised
downward its GDP growth forecast for 2014 to 2.1% amid anticipations of a strong decline in growth in
the first quarter.

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The Daily Economic News is an informal briefing for Bank staff whose responsibilities require that they
stay abreast of changes in global markets. The views expressed here do not reflect those of the World
Bank Group.
Feedback, and requests to be added to or dropped from the distribution list, may be sent to :
dchen2@worldbank.org or gkambou@worldbank.org.