60750 Daily Brief Economics and Financial Market Commentary September 26, 2007 Mick Riordan, Cristina Savescu, Eung Ju Kim, Shane Streifel Annette DeKleine You’ll find recent issues of this Daily and lots of other current analysis and high-frequency data at our intranet website: http://GEM or for external users: www.worldbank.org/gem U.S. durable goods orders down by most in seven months, contributing to the list factors, such as the housing slump and tighter credit, which indicate an easing of investment growth is in the offing. Orders for durables declined 4.9% (m/m) in August, a sharp downswing from a revised gain of 6.1% (m,/m) in July (seasonally adjusted). Orders for commercial aircraft went into a 41% nose-dive following a 13% increase in July. Excluding transportation equipment, the shift in orders was less pronounced, with a 1.8% decline in August versus a 3.4% (m/m) gain in the previous month. Orders for capital goods were also down sharply, falling by 10.5% m/m, with non-defense capital goods orders shrinking by 12.6%. [see Daily Chart at http://GEM or www.worldbank.org/gem] Mortgage applications in the U.S. declined by 2.8% last week, (through Sept 21), following gains of 2.4%, 5.5% and 1.3% in the previous three consecutive weeks. The decline was led by a fall in purchases of 7.3%, the largest drop since January, while applications for mortgage refinancing grew by 3.3%. The index excludes data from wholesale brokers, which have been more strongly hit by the sub-prime market crunch, suggesting that the decline in overall mortgage applications is higher. The average interest rate for a 30-year fixed-term mortgage rose to 6.38%, up from 6.29% in the previous week and compared with 6.18% a year ago. Yesterday, the National Association of Realtors released that the sales of existing homes declined to a five-year low, indicating that purchasers are on the sidelines watching for further price declines. Japan’s trade surplus surges as export growth sharply outstrips import growth. The August trade surplus rose to 743 bn yen ($6.5 bn), nearly quadruple the level from a year ago, as shipments to Europe and Asia reached record highs. Export growth accelerated to 14.5% (y/y) in August, up from 10.9% in July, while import growth decelerated to 5.7% (y/y), nearly-one-third the rate in July. The outturn surprised on the upside, as many analysts expected export growth to moderate. Senior economist Miko Noguchi at Daiwa Securities SMBC Co in Tokyo said, “the sub-prime impact may materialize in coming months so we need to watch developments closely.” ECB against ‘brutal’ movements on foreign exchange markets, according to council member Guy Quaden, as euro reaches new record against the dollar today, trading at 1.4162 this morning in Frankfurt. Currency speculators are betting on further policy cuts by the U.S. Federal Reserve to prevent financial market turmoil from dragging growth down in the real economy. European Central Bank (ECB) council members remain concerned about inflationary pressures. The central bank for the 13 euro-Area member countries has raised policy rates eight times since late-2005 to prevent overheating, and is scheduled to meet next week on October 4. Among emerging markets... In East Asia, Singapore’s manufacturing output gained 13.8% y/y In August, down from a 22.1% gain the previous month. Industrial output shrank a seasonally adjusted 13.7% m/m in August after having surged 26.3 % the previous month. In Europe and Central Asia, The Poland’s central bank left its key interest rate unchanged at 4.75 percent after having raised borrowing costs three times this year. Growth in Poland decelerated to 6.7% y/y in the second quarter from 7.4% in the first quarter, which was the fastest pace in a decade. Czech Republic’s budget deficit is projected to inch down to 3.9% of GDP in 2007 from 4.0% the previous year, and is expected to come down further to 2.9% of GDP in 2008. In Latin America, Mexico’s trade deficit for the month of August stood at $1.17 billion as exports gained 6.0% and imports increased 7.4%. This brought the trade deficit in the first eight months of the year to $7 billion compared to a budget deficit of $560 million during the same period of 2006. Strong auto exports point to stronger growth in the third quarter, as industrial output is likely to pick up. There are downside risks however stemming from the deceleration in growth in the US and potentially higher local interest rates. In Sub-Saharan Africa, South Africa’s inflation rate remained above the central bank’s target of 3.0% to 6.0% for the fifth consecutive month, easing only marginally to 6.3% in August from 6.5% the previous month. Higher inflation has fueled demands for higher wages threatening to fuel an inflationary spiral. Meanwhile the jobless rate remained at 25.5% in March, as increased hiring in the industrial sector countered job losses in the agriculture sector. Botswana’s trade surplus increased to 783.4 million pula ($127.6 million) from 71.3 million the previous month. ***************************************************** The Daily Brief is a summary of economic news items for Bank staff whose responsibilities require that they stay abreast of changes in global markets. 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