Investors bought and sold according to their sentiment du jour. First they waited for the details from the Chinese Third Plenum at the beginning of the week to unfold, followed Thursday by Janet Yellen’s confirmation hearing testimony to be the next Federal Reserve chair. These events took precedence to a large part over key economic data that were released during the week such as disappointing third quarter flash growth estimates for the Eurozone and its member states and even Japan’s growth estimate.
In the Asia Pacific, the weekly changes ranged from the Nikkei’s 7.7 percent advance to the Jakarta Composite’s decline of 3.2 percent. In Europe, equities were mixed with the FTSE, MIB and IBEX down on the week while the CAC, DAX and SMI advanced. In North America, all indexes followed here gained with both the Dow and S&P reaching new closing highs.
|
|
2012 |
2013 |
% Change |
|
Index |
31-Dec |
Nov 8 |
Nov 15 |
Week |
Year |
Asia/Pacific |
|
|
|
|
|
|
Australia |
All Ordinaries |
4664.6 |
5394.4 |
5396.2 |
0.0% |
15.7% |
Japan |
Nikkei 225 |
10395.2 |
14086.8 |
15165.9 |
7.7% |
45.9% |
Hong Kong |
Hang Seng |
22656.9 |
22744.4 |
23032.2 |
1.3% |
1.7% |
S. Korea |
Kospi |
1997.1 |
1984.9 |
2005.6 |
1.0% |
0.4% |
Singapore |
STI |
3167.1 |
3177.3 |
3201.3 |
0.8% |
1.1% |
China |
Shanghai Composite |
2269.1 |
2106.1 |
2135.8 |
1.4% |
-5.9% |
|
|
|
|
|
|
|
India |
Sensex 30 |
19426.7 |
20666.2 |
20399.4 |
-1.3% |
5.0% |
Indonesia |
Jakarta Composite |
4316.7 |
4476.7 |
4335.5 |
-3.2% |
0.4% |
Malaysia |
KLCI |
1689.0 |
1804.5 |
1789.9 |
-0.8% |
6.0% |
Philippines |
PSEi |
5812.7 |
6355.2 |
6346.40 |
-0.1% |
9.2% |
Taiwan |
Taiex |
7699.5 |
8229.6 |
8177.1 |
-0.6% |
6.2% |
Thailand |
SET |
1391.9 |
1405.0 |
1420.7 |
1.1% |
2.1% |
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
UK |
FTSE 100 |
5897.8 |
6708.4 |
6693.4 |
-0.2% |
13.5% |
France |
CAC |
3641.1 |
4260.4 |
4292.2 |
0.7% |
17.9% |
Germany |
XETRA DAX |
7612.4 |
9078.3 |
9168.7 |
1.0% |
20.4% |
Italy |
FTSE MIB |
16273.4 |
18961.7 |
18687.2 |
-1.4% |
14.8% |
Spain |
IBEX 35 |
8167.5 |
9747.2 |
9695.9 |
-0.5% |
18.7% |
Sweden |
OMX Stockholm 30 |
1104.7 |
1281.9 |
1295.9 |
1.1% |
17.3% |
Switzerland |
SMI |
6822.4 |
8240.9 |
8327.3 |
1.0% |
22.1% |
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
United States |
Dow |
13104.1 |
15761.8 |
15961.7 |
1.3% |
21.8% |
|
NASDAQ |
3019.5 |
3919.2 |
3986.0 |
1.7% |
32.0% |
|
S&P 500 |
1426.2 |
1770.6 |
1798.2 |
1.6% |
26.1% |
Canada |
S&P/TSX Comp. |
12433.5 |
13378.3 |
13482.6 |
0.8% |
8.4% |
Mexico |
Bolsa |
43705.8 |
39864.2 |
41034.1 |
2.9% |
-6.1% |
European markets ended the week on a positive note, with the main indexes trading more than a quarter of a percent higher Friday. Markets were generally soothed by moves and comments from central banks to support growth, with the European Central Bank cutting its interest rate last week and the Fed chairman designate Janet Yellen telling U.S. senators Thursday it is imperative that the Fed does what it can to promote a strong economic recovery. On the week, the FTSE retreated 0.2 percent while the CAC added 0.7 percent and both the SMI and DAX were up 1.0 percent.
The European markets ended Friday's session with modest gains, following the strong rally during the prior trading session. Thursday's gains were attributed to Yellen's dovish comments. Ms Yellen defended the Fed's monetary policy and warned that unemployment remains too high for the Fed to consider significantly scaling back its $85 billion a month in asset purchases.
Spain and Ireland are set for clean exits from their rescue programs as the stringent and structural reforms initiated by the governments finally pay off. The Spanish banking sector has improved significantly, including gaining of access to funding markets. The improvement in the regulatory and supervisory framework is expected to increase the resilience of the sector, Eurozone finance ministers said in Brussels. With the official exit of Spain and Ireland from the emergency funding, the remaining economies on the life support mechanism are Greece, Portugal and Cyprus.
Equities dropped Wednesday after the Bank of England provided a more upbeat outlook on the UK economy. Investors were concerned that the BoE will raise rates sooner than previously expected. The new BoE Inflation Report confirmed the widely anticipated modest upward revision to the central bank's growth forecast and a faster than expected decline in the jobless rate. However, even if an increase in the Bank Rate is now officially seen as likely to occur sooner than thought probable in August — with inflation projected to behave itself — any move is still a long way off.
The BoE brought forward by 18 months the moment it expects unemployment to decline to 7 percent, showing the sensitivity of its forward guidance on interest rates to changes in the economy. In its latest quarterly forecasts, the Monetary Policy Committee forecast a 50-50 chance of hitting its 7 percent unemployment threshold in the fourth quarter of 2014, a huge change from its August forecast that unemployment was likely to remain above the threshold until summer 2016. Moreover, inflation (on the basis of current market interest rates) is not expected to be a problem.
The BoE raised its growth forecasts for next year to 2.8 percent from 2.5 percent in August, citing the boost to consumer and business spending that it expects to come from reduced uncertainty about the future for the Eurozone — the UK’s main trading partner — as well as the increased availability of credit from a stronger banking system.
The difference in equity index performance between the emerging Asian economies and those of the industrial countries was vast last week. While equity indexes in Japan, China and Hong Kong staged hefty rallies, the emerging economies such as Indonesia, India and Malaysia declined on worries that the U. S. would curtail its stimulus that has provided the emerging countries with growth opportunities. While Fed Chair nominee Janet Yellen calmed the fears, losses earlier in the week were too big to overcome on Friday.
With the yen declining, the Nikkei once again soared — it jumped 7.7 percent on the week to its highest level since May — as government officials signaled they are prepared to fight to keep the yen weak. On Thursday, the yen traded above ¥100 to the U.S. dollar for the first time in two months after Finance Minister Taro Aso said "Japan must have tools to counter speculative moves in the currency market." His remarks gave investors a strong indication that Japan would probably push back against any tentative strengthening of the yen. Investors say Mr. Aso's comments underscore the Japanese government's commitment to revitalizing the slow growing economy with a weaker yen. Third quarter gross domestic product grew at less than half the pace of the second quarter. GDP was up at a seasonally adjusted annualized pace of 1.9 percent after expanding 3.9 percent in the previous quarter. The loss of momentum in recent months has called into question Prime Minister Shinzo Abe's formula for growth or ‘Abenomics’. The first element of Mr. Abe's plan was aggressive monetary easing by the Bank of Japan, while the second was increased spending on public works.
Chinese Third Plenum
The communiqué of the Third Plenum reiterated the role of state ownership while saying development of the non-public sector will be “encouraged.” The Asian business community’s initial reaction on Wednesday to the highly anticipated pronouncement was basically that the communiqué was heavy on goals and short on details and short of expectations. The communiqué suggests that important changes could come in the form of overhauling tax policies, cutting red tape and speeding up social security changes. It also hinted that farmers could be given a degree of rights over the land on which they live — a change that analysts have long said is crucial to increasing consumption and migration to cities. For more concrete evidence of how the leadership will progress, however, analysts and investors will have to wait for more detailed action plans and announcements that are likely to come in the next few weeks and months as the fuller set of decisions made at the four day meeting is published.
The U.S. dollar declined against the pound sterling, euro, Swiss franc and Canadian dollar on the week. However, the dollar advanced against the yen and Australian dollar. Disappointing industrial production and regional manufacturing data added to bets the Federal Reserve will not curtail its monthly asset purchases anytime soon. The dollar was pressured after Fed Chair nominee Janet Yellen told Congress Thursday that quantitative easing is still needed to spur growth.
The yen declined against the dollar to the weakest level since early September. It lost 1.1 percent in the week. The yen weakened beyond ¥100 per dollar for the first time since September as Japan’s gross domestic product growth slowed to an annualized 1.9 percent in the calendar third quarter from 3.8 percent in the second quarter.
The yen already has fallen over 25 percent against the dollar over the past year. Japan's Prime Minister Shinzo Abe came into power in late 2012 promising to rein in the persistent strength of the yen. However, the yen's depreciation stalled over the summer. With concerns about a military intervention in Syria and the U.S. government impasse over its budget, investors sought out the yen as a safe haven, strengthening it. The yen is seen as an asset that retains its value even in the face of market turmoil.
The pound sterling was up for a second week against the dollar. Sterling was up for a third day against the euro after BoE Governor Mark Carney said that Britain has “one of the strongest recoveries in the advanced world.”
|
|
2012 |
2013 |
% Change |
|
|
Dec 31 |
Nov 8 |
Nov 15 |
Week |
2013 |
U.S. $ per currency |
|
|
|
|
|
|
Australia |
A$ |
1.040 |
0.938 |
0.937 |
-0.1% |
-9.9% |
New Zealand |
NZ$ |
0.829 |
0.824 |
0.834 |
1.1% |
0.6% |
Canada |
C$ |
1.007 |
0.955 |
0.958 |
0.3% |
-4.9% |
Eurozone |
euro (€) |
1.319 |
1.336 |
1.349 |
1.0% |
2.3% |
UK |
pound sterling (£) |
1.623 |
1.601 |
1.611 |
0.6% |
-0.7% |
|
|
|
|
|
|
|
Currency per U.S. $ |
|
|
|
|
|
|
China |
yuan |
6.231 |
6.091 |
6.093 |
0.0% |
2.3% |
Hong Kong |
HK$* |
7.750 |
7.752 |
7.754 |
0.0% |
0.0% |
India |
rupee |
54.995 |
62.475 |
63.120 |
-1.0% |
-12.9% |
Japan |
yen |
86.750 |
99.150 |
100.230 |
-1.1% |
-13.4% |
Malaysia |
ringgit |
3.058 |
3.179 |
3.202 |
-0.7% |
-4.5% |
Singapore |
Singapore $ |
1.222 |
1.247 |
1.246 |
0.0% |
-2.0% |
South Korea |
won |
1064.400 |
1064.900 |
1063.530 |
0.1% |
0.1% |
Taiwan |
Taiwan $ |
29.033 |
29.462 |
29.591 |
-0.4% |
-1.9% |
Thailand |
baht |
30.580 |
31.475 |
31.605 |
-0.4% |
-3.2% |
Switzerland |
Swiss franc |
0.916 |
0.922 |
0.915 |
0.7% |
0.1% |
*Pegged to U.S. dollar |
|
|
|
|
|
|
Source: Bloomberg |
|
|
|
|
|
|
September industrial production (excluding construction) dropped 0.5 percent on the month but was up 1.1 percent from a year ago. The monthly slide in production reflected broad based losses among major sectors with just energy (1.3 percent) managing positive growth. Durable consumer goods (down 2.6 percent) were especially weak but there were sizeable declines in capital goods (1.0 percent) and intermediates (0.8 percent). Nondurables were off a more modest 0.2 percent. Regionally, the majority of member states posted monthly losses. France was down 0.4 percent and lost Germany 0.8 percent but Italy saw a 0.2 percent advance and Spain a 0.4 percent rise. Ireland (2.9 percent) was the best performer and Portugal (down 11.2 percent) easily the worst.
Flash third quarter gross domestic product edged up 0.1 percent on the quarter but was down 0.4 percent when compared with the same quarter a year ago. Particularly worrying was the performance of the larger states, notably France and Italy whose economies contracted at a quarterly rate of 0.1 percent. Spain (0.1 percent) finally moved back into positive growth but Germany (0.3 percent) slowed significantly. Elsewhere, the Cypriot economy (down 0.8 percent) continued its downward spiral and the Netherlands (up 0.1 percent) all but stagnated. There was better news out of Estonia (0.4 percent) which moved out of recession. Austria and Portugal (both 0.2 percent) saw very modest expansion rates and Belgium (0.3 percent) not much better.
October harmonized index of consumer prices edged down 0.1 percent from September and were up 0.7 percent when compared with the same month a year ago. The annual rate was the lowest since November 2009. The underlying picture also weakened with the HICP excluding food, drink, tobacco and energy unrevised at a 0.8 percent 12-month rate. Without seasonal food and energy, prices were up 1.1 percent on the year and without unprocessed food and energy they also were up 1.1 percent. Regionally inflation fell in every EMU state. Greece (minus 1.9 percent) remained comfortably at the bottom of the price ladder but was joined in negative territory by both Cyprus (minus 0.5 percent) and Ireland (minus 0.1 percent). Estonia (2.2 percent), despite similarly posting a sizeable decline in its rate, stayed easily at the top ahead of Finland (1.7 percent) and Austria (1.5 percent) and was the only country above the ECB's near-2 percent medium target level.
Third quarter flash gross domestic product was up 0.3 percent, less than half the 0.7 percent rate achieved in the second quarter. Real GDP was up an unadjusted 1.1 percent on the year following a 0.9 percent increase last time. As usual with the flash data, no details of the GDP components were provided but the FSO did indicate that domestic demand expanded with positive contributions coming from private and government consumption and from investment and construction. By contrast, net foreign trade subtracted from quarterly growth as imports were up while exports were broadly flat.
Third quarter flash gross domestic product contracted 0.1 percent from the previous period when it expanded 0.5 percent. On the year, GDP was up 0.2 percent. The slowdown was led by household consumption which was up 0.2 percent on the quarter, half its previous rate, and gross fixed capital formation which declined again, this time down 0.6 percent after a 0.4 percent drop in the second quarter. With general government final spending up 0.2 percent — 0.5 percentage points less than last time — final domestic demand made no contribution to quarterly growth having added 0.4 percentage points previously. Elsewhere, net trade subtracted a hefty 0.7 percentage points from the quarterly change in total output as exports slumped 1.5 percent while imports were up 1.0 percent. However, stock building had a sizeable positive impact on the bottom line, boosting growth by fully 0.5 percentage points.
Third quarter preliminary gross domestic product contracted 0.1 percent on the quarter and was down 1.9 percent from the same quarter a year ago. This was the ninth consecutive quarterly decline. Real GDP is now at its lowest level since the first quarter of 2000. The limited information provided by Istat indicated that economic activity was dragged down by weakness in agriculture and services while the goods producing sector had a partially offsetting positive impact.
October consumer prices edged up 0.1 percent on the month and were up 2.2 percent on the year after recording an increase of 2.7 percent the month before. The slowdown was partly due to weakness in transportation charges which dropped 1.5 percent from September to reduce their annual change from 1.1 percent to minus 0.3 percent. Food & non-alcoholic drinks (3.9 percent after 4.3 percent) also helped to depress the annual headline rate as did health (2.6 percent after 2.9 percent) and miscellaneous goods & services (0.7 percent after 0.9 percent). The annual core rate was 1.7 percent, also 0.5 percentage points short of its September rate and its lowest reading in more than four years. However, October's slide in inflation was also driven in no small way by very favorable base effects caused by a near-trebling of university fees that added almost 0.4 percentage points to the monthly change in overall prices in October 2012. Thus, education charges were 10.3 percent higher on the year in October having risen 21.4 percent in September.
October producer output prices declined 0.3 percent on the month and are up 0.8 percent on the year. Input prices were down 0.6 percent and were 0.3 percent lower than in October 2012. Output prices were undermined by a near-3 percent monthly drop in petroleum product charges which alone accounted for the entire headline decline. Food (down 0.3 percent), paper & printing (down 0.2 percent) and computer, electrical & optical products (down 0.1 percent) had smaller negative effects. The only monthly increase of any note was in tobacco & alcohol (0.5 percent). Core factory gate prices edged 0.1 percent higher on the month for a 0.9 percent annual rate. Input costs were very mixed. A particularly large monthly drop in imported metals (7.1 percent) and less marked declines in crude oil (2.1 percent), home food materials (2.0 percent) and imported parts & equipment (1.6 percent) contrasted with a surge in imported food materials (7.8 percent) and sizeable increases in imported fuel (4.7 percent), chemicals (1.8 percent) and other home produced materials (1.4 percent).
October claimant count unemployment dropped a sizeable 41,700 following a steeper revised 44,700 decline in September, its third consecutive decline in excess of 40,000. As a result, the jobless rate, having already shed 0.2 percentage points last time, dipped another tick to 3.9 percent, its lowest level since January 2009. The ILO confirmed the bullish picture with its measure of unemployment falling 48,000 last quarter, enough to see its definition of the jobless rate slip 0.1 percentage point to 7.6 percent or just 0.6 percentage points above the BoE's knockout threshold. Employment was up 177,000 to a record high of 29.953 million. However, the rising demand for labour has yet to feed through in any meaningful way into wages. Annual average earnings growth last quarter was only 0.7 percent, a tick less than in the three months to August. Moreover, regular pay was almost as soft, holding steady at an annual rate of just 0.8 percent.
October retail sales dropped 0.7 percent and were up 1.8 percent from a year ago. Non-food demand contracted 1.3 percent from September led by sizeable declines in clothing & footwear (2.8 percent), household goods (1.2 percent) and the other stores category (1.5 percent). Non-specialized stores were up 1.3 percent and non-store retailing was up 1.1 percent. Food sales slipped 0.1 percent but fuel was 2.1 percent weaker and without this, total volumes would have dropped a marginally smaller 0.6 percent on the month.
September tertiary index slipped 0.2 percent and was up 1.0 percent from a year ago. Among the industries that declined were scientific research, professional and technical services (4.9 percent), electricity, gas, heat supply & water (3.7 percent), living related & personal services & amusement services (2.6 percent) and accommodations, eating & drinking services (0.4 percent). Partially offsetting these declines were increases in real estate & goods rental & leasing (1.3 percent), finance & insurance (1.1 percent), wholesale & retail trade (0.5 percent), information & communications (0.9 percent) and medical, health care & welfare (0.3 percent).
September private machinery orders excluding volatile orders dropped 2.1 percent on the month after climbing 5.4 percent the month before. On the year, these orders were up 13.0 percent. Manufacturing orders were up 4.1 percent while nonmanufacturing orders excluding volatile orders skidded 7.0 percent. Total orders including volatile orders jumped 13.2 percent. Government orders soared 42.9 percent. Orders from overseas were 12.1 percent higher.
First estimate of third quarter gross domestic product was up 0.5 percent for the fourth consecutive quarterly increase. GDP was up at an annualized pace of 1.9 percent. Growth was backed by a jump in public investment of 6.5 percent on the quarter. This was part of the government's economic stimulus package and strong demand for housing construction ahead of the sales tax increase in April 2014. Growth slowed from the second quarter which saw an unrevised 0.9 increase or at an annualized pace of 3.8 percent. The reasons given were a slump in exports to the U.S. and China along with slower consumer spending. Net exports subtracted 0.5 percentage points from third quarter GDP for the first negative contribution in three quarters. Personal consumption, which accounts for about 55 percent of GDP, edged up a mere 0.1 percent on the quarter. CAPEX increased 0.2 percent on the quarter after increasing 1.1 percent in the second quarter.
October consumer price index was up 3.2 percent from a year ago after increasing 3.1 percent the month before. For the 10 months to date, the CPI was up 2.6 percent after 2.5 percent last time. On the month, the index edged up 0.1 percent after jumping 0.8 percent in September. The urban and rural CPIs were up 3.2 percent and 3.3 percent respectively. Once again it was food prices that pushed up the overall index. Food prices jumped 6.5 percent after increasing 6.1 percent last time. Nonfood prices were up 1.6 percent for a second month. Tobacco & alcohol prices were down 0.2 percent for a second month while communication declined 0.6 percent after slipping 0.2 percent.
October producer prices dropped 1.5 percent from a year ago after declining 1.3 percent in September. The PPI was unchanged on the month after increasing 0.2 percent. For the year to date, the PPI was down 2.0 percent after sliding 2.1 percent in September. Consumer goods prices were unchanged while production materials were 2.0 percent lower. Within consumer goods, food prices were up 0.5 percent from a year ago while clothing & related products were up 1.2 percent. However, durable goods were down 1.1 percent. Within the production category, mining & exploration prices dropped 4.1 percent, raw materials declined 2.0 percent and processing was 1.5 percent lower.
October industrial production was up 10.3 percent from a year ago, about the same as the month before. For the year to date, output was up 9.7 percent. On the month, output jumped 0.86 from 0.73 percent in September. Auto output was up 25.5 percent on the year after climbing 17.5 percent in September and 14.8 percent in August. Transport equipment output eased to an increase of 8.7 percent from 10.0 percent the month before. Machinery was up 11.8 percent after an 11.1 percent increase in September. Steel product growth eased to an increase of 12.3 percent from 15.5 percent the month before.
October retail sales increased 13.3 percent from a year ago for a second month. Year to date sales were up 13.0 percent. On the month, retail sales were up 1.19 percent after 1.26 percent in September. Urban retail sales were up 13.1 percent for a second month while rural sales were up 14.6 percent after increasing 14.8 percent the month before. Auto sales were up 14.2 percent after increasing 13.2 percent in September. Communications equipment jumped 31.4 percent from a year ago after rising 20.6 percent.
September seasonally adjusted trade deficit was C$0.44 billion, a surprisingly sharp narrowing from the slightly smaller revised C$1.1 billion shortfall posted in August. The improvement reflected a 1.8 percent monthly increase in total exports within which US purchases were up 1.0 percent and sales to the EU, 21.0 percent. Imports edged up 0.2 percent including a 0.9 percent gain in US deliveries. The bilateral surplus with the US was C$4.30 billion, an increase of C$0.80 billion from August. The monthly advance in overall exports was driven by aircraft & other transportation equipment & parts (17.4 percent) and energy products (4.6 percent). Farm, fishing & intermediate food products climbed 3.5 percent and smaller gains were seen in consumer goods (1.1 percent) and metal & non-metallic mineral products (0.6 percent). Imports were held back by a 12.7 percent monthly slide in aircraft & other transportation equipment & parts as well as a 7.1 percent drop in basic & industrial chemical, plastic & rubber products. Weakness was also apparent in contraction for forestry products and building & packaging materials (2.2 percent), metal and non-metallic mineral products (2.4 percent) and industrial machinery, equipment & parts (down 3.1 percent). However, energy surged 7.3 percent and electronic & electrical equipment & parts, 2.5 percent.
Investors focused on China’s Third Plenum and the confirmation hearing for Janet Yellen to be the next Federal Reserve Chair after Ben Bernanke’s term ends on January 31.3014. Equities rallied after Ms Yellen’s statement and testimony as she presented a balanced view that did not differ from current policy. Economic data disappointed however. Third quarter growth weakened in the Eurozone and member states and in Japan.
This week promises to be somewhat quieter. The Reserve Bank of Australia, Bank of England and the Federal Reserve will publish minutes of their most recent monetary policy meetings. The Bank of Japan meets. Toward the end of the week, flash November manufacturing PMIs will be released for China, the Eurozone, Germany, France and the U.S. There are, as usual, many Fed officials scheduled to speak.
Central Bank activities |
|
November 20 |
United States |
FOMC Minutes |
November 20, 21 |
Japan |
Bank of Japan Monetary Policy Meeting |
|
|
|
The following indicators will be released this week... |
Europe |
|
|
November 18 |
Eurozone |
Merchandise Trade (September) |
November 19 |
Germany |
ZEW Survey (November) |
November 20 |
Germany |
Producer Price Index (October) |
November 21 |
Eurozone |
PMI Manufacturing, Services & Composite (November flash) |
|
Germany |
PMI Manufacturing, Services & Composite (November flash) |
|
France |
PMI Manufacturing, Services & Composite (November flash) |
November 22 |
Germany |
Gross Domestic Product (Q3.2013 preliminary) |
|
|
Ifo Business Survey (November) |
|
|
|
Asia/Pacific |
|
|
November 20 |
Japan |
Merchandise Trade Balance (October) |
November 21 |
China |
Manufacturing PMI (November, flash) |
|
|
|
Americas |
|
|
November 22 |
Canada |
Retail Sales (September) |
|
|
Consumer Price Index (October) |
Anne D Picker is the author of International Economic Indicators and Central Banks.
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