New Developments Abroad: U.S. Treasury and Fed Announce Steps to Boost Big Mortgage Lenders

July 14, 2008

The dollar firmed 0.8% against the Swiss franc, 0.5% against the euro and yen, and 0.2% versus sterling.  The kiwi and C-dollar are flat.  A-dollar rose 0.2%.

Freddie Mac and Fannie Mae shares traded higher in Europe after U.S. government promise to channel funds to them. The Dax (+1.0%) and Ftse (+1.4%) are higher.  Earlier in Asia, the Nikkei (-0.2%), Hang Seng (-0.8%), Kospi (-0.6) declined.  Shares also closed down in Australia, Taiwan and Indonesia but were higher in China.

The 10-year JGB yields dipped half a basis point to 1.59%. Sovereign bond yields firmed in Switzerland and Britain.

Oil settled back 1.3% to $143.21/barrel.  Gold slid 0.2% to $959.10 per ounce.

Industrial output in Euroland plunged 1.9% in May, swinging the 12-month change into the red by 0.6%.  Output fell by 2.6% each in Germany, France and Spain and by 4.5% in Greece, 6.0% in the Netherlands, and 1.4% in Italy.  Analysts were anticipating a drop of at least 2.0%.

Retail sales in New Zealand slumped 1.2% in May, completely reversing a gain in April.

On-year British producer price inflation accelerated to 10.0% for the PPI-O and 30.0% for the PPI-I indices in June.  Those figures are the highest in at least 20 years.  But the on-month 0.3% increase of core output producer prices was the smallest advance in seven months.

The Bank of Japan Policy Board began a two-day interest rate meeting and is expected to announce an unchanged 0.5% target rate tomorrow.

Kate Barker, a member of the Bank of England MPC, warned about keeping high interest rates for too long.

Officials at the Bank of Korea reiterated that containing inflation is their highest priority.  Smaghi of Italy warned that slower growth may not be enough to reduce inflation to target.  Germany’s engineering workers’ union, I.G. Metall, is prepared for an “ambitious” wage round.

International reserves in Asia climbed 10.8% to $4.351 trillion in 1H08.  The largest holders at midyear were China (+18.4% to $1.81 tln), Japan (+2.9% to $1.002 tln), and India (+18.4% to $312 billion).

Chinese M2 expanded 17.4% y/y in June after on-year gains of 18.1% in May and 16.3% in April.  Yuan lending jumped 28.6% y/y.

Japan’s economics minister characterized the economy as in a barely flat trend.

The South African rand touched a six-week high against the dollar.

France is celebrating Bastille Day.

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