New Developments Abroad: Dollar Consolidates Friday's Gains

August 11, 2008

Following its best single day in years, the dollar is unchanged overnight against the euro, sterling and kiwi and off just 0.1% versus the Australian dollar, Swiss franc and Canadian dollar.  Biggest dollar changes is a 0.2% dip against the yen.

While the Nikkei jumped 2.0%, stocks fell by 5.2% in China and 2.8% in Indonesia.  German Dax and Paris Cac firmed 0.4%.  British Ftse rose 0.5%.

The 10-year JGB yield eased 1.5 basis points to a 4-month low of 1.455%.  Bund yields are flat.

Oil rose 0.6% but remains below $116/barrel.  Gold also rose 0.6% to $869.70/oz.  Russia continues to bomb neighboring Georgia.

French industrial production fell 0.4% m/m and 0.2% y/y in June after downward revised May drop of 2.9%.  Output in 2Q fell 1.4%, signaling likely contraction of real GDP last quarter.

British output producer prices gained 0.4% in July, lifting on-year rate to 10.2% from 10.0%.  Core firmed to 6.6%, most since May 1981.  But input producer prices unexpectedly dropped 0.6% m/m, although still recording a very elevated 12-month increase of 30.1%.

The British goods and services trade deficit of Gbp 4.414 bln in June was 8.4% wider than the deficit in May.  The goods trade shortfall widened to Gbp 7.68 bln from Gbp 7.40 billion in May.

The Reserve Bank of Australia released a new quarterly monetary policy statement.  Such foreshadows a coming rate reduction but created ambiguity about whether it would happen as soon as September and doubt about whether that first move will be by 50 basis points.  Projected growth was lowered to 2.0% in 2008, 2.5% by end-2009 and 2.75% in 2010.  However, the projected path of inflation, which is now expected to crest at 5.0% later this year, was revised higher.

Italian harmonized consumer price inflation held steady at 4.0% y/y in July, thanks to a 0.6% monthly drop.

Norwegian core CPI inflation accelerated to 2.9%, not 2.6% as expected, and total CPI inflation rose to a 65-month high of 4.3% from 3.4% in June.  The Norges Bank may therefore raise rates later this week.  Last increase to 5.75% was implemented in June.

Chinese producer price inflation increased to 10.0% y/y in July from 8.8% in June despite lower food price inflation.  Officials downplayed this release, saying that pressure is unlikely to seep into consumer prices.  Chinese on-year export growth of 26.9% in July compared to 17.6% in June and far surpassed street expectations.  Despite import growth of 33.7%, the trade surplus widened from $21.4 billion in June to $25.28 billion.  The surplus has widened in five straight months from $8.6 billion in February.

Greek GDP growth slowed to 3.4% y/y in 2Q08 from 3.6% in 1Q08 and 4.1% in 2Q07.

Higher oil costs lifted German WPI inflation 8.9% in June to a higher-than-forecast 9.9% in July.  That was up from 2.6% y/y in July 2007 and the worst since November 1981. Danish harmonized CPI inflation rose to 4.4% y/y in July from 4.2% in June.

Japan’s government hopes to unveil a stimulus package by the end of this month. 

Hank Paulson will step down as U.S. Treasury Secretary in January regardless of who wins the election in November.

Singapore GDP fell 6% saar in 2Q08.  Many emerging markets are getting sucked into the global slowdown, too.

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