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BOV Market Watch - Week Ending 9th December 2016
09 Dec 2016

ECB keeps rates unchanged but ready to extend stimulus if necessary. In its final monetary meeting for this calendar year held last Thursday, the European Central Bank (ECB) left all its three interest rates unchanged for a sixth session in a row. The bank also retained its asset purchases of 80 billion a month until March next year, but decided to reduce the size beyond that point to 60 billion a month until December 2017. ECB President Mario Draghi later stated that the option of scaling back bond purchases gradually to zero, or 'tapering', was not discussed at Thursday meeting, but said that the bank was ready to extend and boost the stimulus when necessary. The ECB kept the refi rate unchanged at a record low zero percent in the policy meeting held in Frankfurt. The deposit rate was held steady at -0.40 percent, and the marginal lending facility rate at 0.25 percent. The rate decision was in line with economists' expectation.

Italian Prime Minister Renzi resigns amid heavy referendum defeat. Italian Prime Minister Matteo Renzi quit in the early hours of Monday after losing a referendum he had called to push through constitutional changes, potentially threatening renewed political and financial turmoil for Europe. Opponents of Mr Renzis proposal to rein in the power of the senate won Sundays referendum by nearly 60% to 40%. Mr Renzi will remain in office for the time being after Italian President Sergio Mattarella asked him to delay his resignation until the Senate passes his government's 2017 budget. Mr Mattarella also signalled that he won't call snap elections in response to the referendum results, stating it was important for Italy's institutions to "respect commitments and deadlines" and it would take time to find the right solutions.

U.S. jobs growth exceeds estimate, unemployment rate hits nine-year low. The U.S. economy added 178,000 jobs in November and the unemployment rate fell to 4.6% according to a much-awaited report published by the Labor Department at the end of last week. The report, the last major employment data point before the Federal Reserve's December policy meeting, showed that non-farm payroll employment climbed by 178,000 in November following a downwardly revised increase of 142,000 jobs in October. The November reading was close to Wall Street’s expectations of 175,000, though economists surveyed in a Reuters poll had expected the unemployment rate to stay at 4.9%. The unemployment rate matched the lowest level since August 2007, thanks partly to a decline in the labour force participation rate to its lowest level since June and still close to 40-year lows.

U.K. industrial output suffers biggest fall in four years. U.K. manufacturing growth fell sharply in October, surprising economists, who had forecasted a rise. According to the Office for National Statistics (ONS), output from British manufacturers dropped by 0.9% in the review month, following a 0.6% rise in September. Total industrial production dropped by 1.3% in October, after falling 0.4% in September. The decline in October’s manufacturing output was "broad-based across the sector", the ONS said. However, the temporary shutdown of a major oilfield was the main contributor to the fall, which was the biggest decline in overall production since August 2013. The figures show that the biggest downward pressure came from the pharmaceutical industry, which saw a drop of 3.6%. As for total industrial production, the largest fall in output came from oil and gas, which shrank by 10.8%.

U.S. trade deficit widened in October. The U.S. Commerce Department said that the country’s trade deficit with the rest of the world widened to $42.6 billion in October from $36.2 billion the previous month. The wider deficit came amid a decline in the value of exports accompanied by an increase in the value of imports. According to the report, the value of exports fell by 1.8% to $186.4 billion, while the value of imports rose by 1.3% to $229.0 billion. Economists had forecasted that the deficit would widen to $42.0 billion. The Commerce Department added that the goods deficit widened to $63.4 billion in October from $57.1 billion in September. On the other hand, the services surplus narrowed to $20.8 billion from $20.9 billion.

China service sector activity picks up in November. Activity in China's service sector expanded at a faster rate in November, a private study showed. The Caixin China services purchasing managers' index (PMI) rose to a 16-month high of 53.1 in November from 52.4 in October, Caixin Media Co. and research firm Markit said. A reading above 50 indicates a month-on-month expansion, while a reading below that level signifies contraction. Increased new orders and higher prices for services lifted confidence among service providers, Caixin said. This adds to recent signs of firmness in China's economy. The rise in the private gauge followed a report last week by the National Bureau of Statistics that showed that China's official nonmanufacturing PMI, which includes the construction sector, edged up to 54.7 in November from 54.0 in October.

Turkish CPI eases in November. The Turkish Statistical Institute reported this week that the countrys consumer price inflation slowed for the fourth consecutive month in November. Inflation declined to 7% in the review month from 7.16% in October. This was the lowest inflation rate since May, when it stood at 6.58%. Cost of alcoholic beverages showed the biggest annual growth of 22.6%. Transportation charges rose by 9.57% and clothing and footwear by 4.59%. At the same time, food prices rose only 3.55%. On a monthly basis, consumer prices gained 0.52%. A separate report showed that producer price inflation rose sharply to 6.41% in November from 2.84% the previous month. Month-on-month, producer prices increased 2% in November.

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