60409


                    Daily Brief
    Economics and Financial Market Commentary
                January 30, 2007
                Mick Riordan (x31289), Cristina Savescu (x80812),
                  Eung Ju Kim (x85804), Shane Streifel (x33867)
                           Annette DeKleine (x34710)
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Mixed signals from Japan at year end. Japan's exports appear to have turned
the corner to growth; industrial output rebounded sharply and labor markets
stayed tight in December. But household spending fell for a third month
running--dropping 2.8% in the fourth quarter (saar)--leaving Japan's recovery
fragile and clouded by uncertainty moving into the New Year.
On the upside, trade outturns for December were quite favorable. After a string of
declines, goods export volumes picked-up 1.9% in December (m/m), on the back
of increased foreign demand for autos and steel, to close the year 8.2% higher.
Recent export orders have been buoyant, up 14.2% in November (m/m) building
on October's 6% advance, and together with the weaker yen point to a brighter
export picture for early 2007. In turn, manufacturing production jumped 0.8% in
December (m/m) to close the fourth quarter up a robust 10.7% (saar); ending the
year 8.2% above 2005 levels [see Daily Chart at http://GEM or
www.worldbank.org/gem.
December's unemployment rate widened marginally from 4-to 4.1%, while job
openings per applicant increased to a reading of 1.08. Despite this favorable
environment, without a rebound and sustained expansion in household spending,
Japan's already fragile recovery will return to its earlier dependence on exports--
a volatile source of growth given today's rapidly changing international
environment. "Today's data were a bit of a disappointment from the BOJ's point
of view," noted Masaaki Kanno of JPMorgan-Chase, Tokyo. "Even with signs
production is solid, the BOJ won't be able to raise rates, as consumption and
inflation show no signs of improving in coming months."
U.S. consumer confidence at 5-year highs. The Conference Board reported
today that the organization's index of consumer sentiment for January increased
to 110.3 from 110 in December, a fairly modest rise, but still indicative of the
positive effects of stronger job markets and wage growth, compounded by falling
gasoline and other energy costs. The CB gauge for January was at highest levels
since May 2002; and the proportion of respondents who said that jobs were
plentiful was the biggest since August 2001.
India's debt rating up to investment grade. Standard & Poor's raised India's
foreign currency sovereign debt to investment grade for the first time in 14 years,
as Asia's economy grows at a record pace. The rating moved from BBB- to
BBB+. Moody's Investor Service earlier raised its rating to investment grade in
January 2004, followed by Fitch in August 2006. Investment grade status may
spur overseas investment in India's power, steel and other industries, while
higher debt ratings also reduce borrowing costs for commercial firms in India.

Among emerging markets...Indonesia's economy expanded 6.5% in the fourth
quarter (y/y), the fastest pace in two years, improving from 5.5% in the third
quarter. The gain is attributed to rising consumer spending, and the central bank
expects household consumption to grow by 4.3% in 2007 from 3.1% last year.
The bank also anticipates that GDP will average 6% growth in 2007. Chile's
industrial production slowed to 1.2% in December (y/y) from 3.2%-and 4.7% in
the previous two months, as copper production slid 4.5%.


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