New Developments Abroad: Financial Stocks Dive Worldwide

July 8, 2008

Equities fell 2.5% in Japan, 2.4% in Germany and Britain, 2.3% in France, 3.2% in Hong Kong, 3.9% in Taiwan, 2.9% in S. Korea, 1.2% in India, 1.1% in Indonesia, and 1.4% in Australia.  China has been an exception to this selloff on sings the government is delaying higher taxes on natural resources.  Banking and other financial stocks have led the selloff in stocks amid signs that U.S. banks need to raise a lot more capital.

Dollar mixed.  As carry trade funding currencies and therefore ones that benefit from risk aversion, the yen and Swiss franc gained 0.5% and 0.2%.  The dollar otherwise shows gains of 0.3% against the Aussie and Canadian dollars and of 0.1% against the pound.  EUR/USD is unchanged.

The yield on 10-year JGB’s sank 8.5 basis points to 1.61% on a good auction with the highest bid:cover ratio in 15 months and in response to the Nikkei’s drop.

Comparatively little movement in commodities.  Oil is 0.1% lower at $141.28 per barrel, while gold climbed 0.2% to $930.90/ounce.

A statement from the G8 leaders summit in Japan urged greater oil production, identified inflation as a top problem and commodity pressures as its main cause, reiterated earlier G7 calls for the appreciation of the yuan and other emerging market currencies associated with large and growing current account surpluses, but made no explicit reference to the U.S. dollar.  President Bush said he backed a strong dollar.

There’s been about $2 billion today of intervention support for the won by the Bank of Korea.

EU finance ministers endorsed the current ECB policy stance, isolating French officials who’ve been critical.

Australian business conditions fell to zero in June from +7 in May, while sentiment worsened to a score of -9 (worst since 09/01) from -4.

Japanese on-year lending and money growth accelerated in June.  Loans rose 2.0% y/y, up from 1.6% in May.  M3, M2, and M1 advanced by 0.9%, 2.3% and minus 0.4% after May’s 0.7%, 2.1%, and -0.7%.  But broad liquidity expanded just 0.7% y/y, down from 0.9%.  M2 rose 2.1% y/y in 2Q after 2.2% in 1Q and 2.0% in 4Q07.

Japan’s Economy Watchers’ index, a gauge of the retail sector, hit a new low of 29.5 in June, down from 32.1 in May.  Such was the third deterioration in a row from a recent uptick to 36.9 in March.  Japanese bankruptcies rose 6.9% y/y in 1H08 and 11.7% y/y in June.

The British Chamber of Commerce said corporate cash flow in 2Q08 was the worst such has been since at least 1992.

A source claimed that Chinese CPI inflation slowed to 7.1% in June from 7.7% in May and 8.5% in April.  Formal CPI data will be released July 17th.

Fed Chairman Bernanke and ECB VP Papademos speak publicly later today.

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