Prospects Daily: Italian borrowing costs improve, US capital orders growth eases, Brazil’s current account deficit widens

Financial Markets… German stocks gained for a third day, with the benchmark DAX index extending this week’s gain to more than 3%, amid growing speculation of further monetary easing by central banks. Investors dismissed poor economic data to focus on prospects of more central bank help.

Italian borrowing costs fell to record lows at a new debt auction today amid speculation that the European Central Bank might cut interest rates next week and the country will soon form a new government following the re-election of president. The Italian Treasury issued €2.5 billion of zero-coupon bonds at a record low yield of 1.167%, down from 1.746% at the previous auction. The country also sold €750 million of inflation-linked securities due 2023 at 2.65%, down from last month’s 3.230%.

Asian stocks advanced the most in two weeks, with the benchmark MSCI Asia Pacific Index climbing 1.4%, as falling yen boosted shares of Japanese exporters. Japan’s benchmark Nikkei 225 index rose 2.3% to the highest closing level since June 2008 as a weaker yen lifted net profit of the country’s exporters. Elsewhere in the region, major stock indices in Hong Kong and China climbed 1.7% and 1.6%, respectively.

High-income Economies…Germany’s Ifo business confidence index showed a sharp deterioration for the second consecutive month falling to 104.4 from 106.7. Coming on the heels of PMI data which showed private sector activity contracting for the first time in six months in April, the IFO survey indicated growing anxiety about business prospects, particularly manufacturing.

In the UK, the Bank of England and Treasury announced a one year extension to the Funding for Lending Scheme (FLS) skewed to target SME lending. In addition, to encourage banks to lend sooner rather than later, bank’s drawdown allowance for every £1 of net lending to SMEs was raised to £10 for 2013 and £5 for 2014, and the range of financial companies that could participate in the scheme widened to cover financial leasing corporations and factoring corporations along with banks and building societies.

Momentum in US durable goods orders – a proxy for future business investment spending – weakened in March. Core orders, comprising durable manufacturing goods excluding volatile transport orders, grew by 9.6% (3m/3m saar) down from 15.5% in February and compared to an annualized increase of 14.3% in Q4 last year.

Developing Economies…Europe and Central Asia: Turkey’s industrial capacity utilization improved in April to 73.6%, up from 72.7% in the previous month and it also marks a fourth consecutive monthly update.

Latin America and the Caribbean:Brazil’s 12-month current account deficit (CAD) widened in March to $67bn, or 2.9% of GDP, up from $63bn in February, or 2.8% of GDP as country’s trade surplus fell to $161mn in March from $2bn the same month last year. 12-month FDI held up in March at $64bn, or 2.8% of GDP and was able to cover nearly entire CAD.