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                      DECPG Daily
        Economics and Financial Market Commentary
                      July 30, 2013
                            Damir Cosic, Eung Ju Kim, Tehmina Khan

  You’ll find recent issues of this Daily and lots of other current analysis and high -frequency data at our
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China injects liquidity…Japan IP falls…South Africa’s unemployment rate rises
Financial Markets…Global equities moved higher on Tuesday amid promising
earnings reports from Asian, European, and U.S. companies and a rise in Euro-zone
consumer and business confidence in July. Investors are currently turning their focus to
this week’s three central bank meetings (the U.S. Federal Reserve, European Central
Bank, and Bank of England). The MSCI Asia Pacific Index gained 0.5% with the index
gearing for a monthly gain of 2.5%, while the Stoxx Europe 600 Index added 0.2%,
extending its July gain to 5.1%. U.S. equities opened higher as well with the S&P 500
and Dow index advancing 0.3%.
The Italian Treasury successfully auctioned €6.75 billion of 5- and 10-year securities as
investors shrugged off potential political risk to the current coalition government. Italy
sold €3.75 billion of debt due in March 2014 with a yield of 4.46%, down from 4.55% at
the last month auction. The country also sold €3 billion of securities due in June 2018 at
3.22%, compared with 3.47% at the previous sale. Following the auction, the country ’s
benchmark 10-year yields slid 5 basis points to 4.4% after rising 14 bps in the past five
days.
The Peoples’ Bank of China conducted reverse-repurchase operations for the first time
since early February in an effort to ease liquidity crunch that sent the benchmark
interbank lending rate to a four-week high. China’s central bank injected 17 billion yuan
($2.8 billion) into money market today at a yield of 4.4% using 7-day reverse repurchase
agreements. The last times China’s central bank offered short-term lending facility were
on January 31 at an interest rate of 3.35% (7-day contracts) and 3.45% at a February 7
auction of 14-day agreements
High Income Economies...US consumer confidence pulled back from a 5-year high in
July, on weakening consumers’ economic and job expectations. The Conference Board
confidence index dropped to 80.3 in July from a revised 82.1 in June. Separately, home
prices in major US cities saw continued growth in May: the S&P/Case-Shiller 20-City
Composite Home Price Index jumped by 1.0% (m/m sa) in May following a 1.7 %
increase in April.
Eurozone economic confidence strengthened for a third month to a 15-month high in
July, driven by improved sentiment among consumers, business leaders, service
providers and retailers, boosting hopes of a recovery. The economic confidence index
improved to 92.5, the highest since April last year, from 91.3 in June.

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Japan’s industrial output fell sharply in June, the first fall in 5 months. Output fell by
3.3% (m/m sa), the biggest monthly decline since early-2009 during the global financial
crisis (excluding the 16.5% m/m drop in March 2011, after the tsunami). Overall
momentum slowed to 5.6% (3m/3m saar) from 7.2% in May. Separately, data by the
Japan Automobile Manufacturers Association showed a sharp drop in vehicle
production in June, of 9.5% (y/y).
Developing Economies…East Asia and Pacific: Malaysia’s ringgit fell on concerns
global investors will repatriate funds after $2.9 billion of sovereign debt matures
tomorrow. The ringgit declined 0.3% to 3.2365 per dollar as of 10:03 a.m. in Kuala
Lumpur. It earlier touched 3.2379, the weakest level since July 1, 2010. It has fallen for
five straight days, the longest losing streak since December 2012, and depreciated 2.4
percent this month and 5.5 percent in 2013.
South Asia: India’s central bank left its policy rate unchanged at 7.25% and held banks'
cash reserve ratio at a record low 4%, but said it will roll back recent liquidity tightening
measures when stability returns to the currency market, enabling it to resume
supporting growth. The rupee tumbled past the symbolically significant 60 per dollar
mark, ending the day at 60.47.
Sub-Saharan Africa: South Africa’s unemployment rate rose in 2013Q2 to 25.6%, up
from 25.2% in the previous three months, as agriculture and manufacturing industries
shed jobs.

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changes in global markets. The views expressed here are those of the various authors and do not
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