New Developments Abroad: Further Equity Sell-Off in Asia and Europe

July 25, 2008

Stocks in Asia fell by 2.0% in Japan, 3.3% in India, 1.8% in Taiwan, 1.5% in Vietnam, 1.3% in China, 0.9% in the Philippines, and 0.5% in Indonesia.

Equities tumbled 3.4% in Australia.  In Europe, the Dax is off 1.5%. The Ftse fell 1.0%, and the Paris Cac lost 0.9%.  U.S. open indicated lower.

The dollar fell 0.4% against the pound, 0.3% against the euro, Swissy and kiwi, and 0.1% vs the C-dollar.  $/yen is unchanged.  USD up 0.1% vs Aussie-$.

Bond prices rallied amid new gloom about U.S. economic outlook.  S&P reiterates prediction of mild but long U.S. recession.  10-Yr JGB off 8 bps to 1.575%.  Bund and Gilt yields fell 5 basis points.

Japanese total consumer prices rose 0.5% in June from May and by 2.0% from mid-2007, the biggest 12-month climb since January 1998.  Non-food CPI advanced 0.4% m/m and by an as-forecast 1.9% y/y, but non-energy/non-food consumer prices were unchanged on the month and up just 0.1% y/y.  Economics Minister Ota warned higher inflation may hurt personal spending.  Tokyo consumer prices rose 1.6% in the year to July both for all items and for non-food.  Tokyo’s non-food and energy CPI edged only 0.3% higher from July 2007.

Japanese stock and bond transactions generated a Y 207 billion outflow last week after an inflow of Y 332 bln in the week to July 12th.

South Korean GDP grew 0.8% in 2Q for a second straight quarter, a shade more than forecast, and by 4.8% from 2Q07. Growth was led by investment and exports.  Analysts expect these data to permit a rate hike to contain higher-than-desired inflation.

German import prices shot up 1.5% m/m in June and 8.9% y/y due to a 49.7%  on-year surge in imported energy prices.  8.9% constitutes the highest 12-month advance since November 2000.  Non-oil import price inflation also picked up with gains of 0.5% from May but just 2.5% from June 2007.

British second-quarter GDP growth was 0.2% from 1Q after growth of 0.3% in 1Q from 4Q07.  Aside from growth of also 0.2% in 1Q05, that was the weakest quarterly growth figure since 2Q01.  On-year economic growth slowed to just 1.6% from 2.3% in 1Q, with a 2.1% rise in services being the smallest rise from this sector since the fourth quarter of 1992.  Construction activity fell 0.7%, worst since 3Q05.  Industrial production slid 0.5%.

Icelandic consumer prices rose another 0.9% m/m in July and by 13.6% from July 2007, most since August 1990.

Euroland money and credit expansion rates in June were much lower than forecast both because of smaller June-over-May growth and due to downward revisions to prior months.  M3 advanced 9.5% y/y in June and 9.9% in 2Q, the first sub-10% 3-month result since Dec-Feb 2007. At end-2007, such crested at 12.1%.  Private loans grew 9.8% y/y, down form 10.5% in May and 10.7% in April.  Lending to non-financial firms, a particular concern recently of ECB officials, went up 13.6% y/y, down from 14.2% in May, 14.9% in April, and 15.0% in March.  M1 edged just 1.4% higher in the year to June.

Despite the lower money and credit growth figures, Liebscher of the ECB Governing Council warned that rates could be raised further if necessary, although the Council does not at present have any bias, up or down, on future interest rate moves.  Liebscher is at the hawkish end of the Council and will be retiring next month.

The Vice Governor of China’s central bank, Su Ninj, predicted continuing strong growth during the second half of 2008 in China after a 10.4% pace in 1H08.

Three bombs went off in Bangalore, India.  Sweden’s trade surplus narrowed 18% to SEK 8.2 billion in June.

The Polish Zlotty hit a new high against the euro and shows a gain of 4.5% since midyear.

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