New Overnight Developments Abroad: Oil Firmer and Dollar Lower

August 27, 2008

The dollar fell 0.8% against the Australian dollar, 0.7% relative to the yen, euro and kiwi, 0.5% against sterling and 0.3% against the Canadian dollar and Swiss franc.  Higher commodity prices and some hawkish remarks by ECB officials lie behind this setback.

Oil (up 1.0% to $117.55 per barrel) and gold (+1.1% to $838.8 per ounce) advanced by remain 20.4% and 19.7% below their respective 2008 peaks.

The Dax and Paris Cac fell 1.3% apiece.  The Ftse and Nikkei are off 0.5% and 0.2%.  Stocks rose 1.1% in Thailand and Indonesia but fell by 3.0% in Pakistan and by 1.3% in India.

The 10-year JGB yield rose 3 basis points to 1.445% amid profit-taking.  The Japanese developer Sohken Homes filed for bankruptcy.  There’s been little change in European sovereign bond yields.

Stark and Weber of the ECB made remarks to discourage speculation that the ECB might soon cut interest rates.  Stark said second-round inflation effects can now be observed, a point not previously conceded as a fact rather than a risk.

Thailand’s central bank raised its key interest rate by 25 basis points.  It had also tightened in July.  Analysts had been split over whether rates would be raised again this month, and many feel the new 3.75% level will be the cyclical peak since growth has slowed faster than expected.

German import prices rose 0.6% in July and 9.3% from July 2007, the greatest 12-month increase since November 2000.  Non-oil import price inflation jumped a full percentage point to 3.5% from 2.5% in June.

Five German states reported CPI inflation data for August, three showing a monthly drop of 0.4% and two a decline of 0.3%.  A smaller decline of about 0.2% had been anticipated.  Energy and food prices paced the drop.

Construction work completions in Australia fell 2.6% in the second quarter, a significantly worse result than forecast, but were still up 5.9% y/y.

South African on-year CPIX inflation accelerated to a record of 13.0% in July from 11.6% in June.  The target ceiling is 6%. The CPI rose 2.1% m/m and 13.4% y/y.

Icelandic CPI inflation accelerated to 14.5% y/y in August from 13.6% in July and 3.4% in August 2007.

After plunging from 99.9 in June to a 15-year low of 95.8 in July, Italian consumer sentiment rebounded to 99.5 in August.  Analysts had predicted only a marginally uptick.  Consumer confidence remains far below its long-term average of 113.5.

Spanish GDP growth in 2Q08 was confirmed at +0.1% from 1Q and 1.8% from 2Q07, down from 2.6% y/y in 1Q08 and at a 13-year low.

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