New Overnight Developments Abroad: Central Banks in Spotlight

September 4, 2008

Asian stocks suffered losses.  Nikkei and Hang Seng both down 1.0%.  Indonesia -1.9%.  Singapore -3.0%.   India -1.0%.

In Europe, the Dax (-1.2%) and Cac40 (-0.8%) are also trading lower, but the Ftse is 0.3% higher.

Sovereign bond yields rose.  The 10-year JGB yield jumped 6.5 basis points to 1.52%, for instance.  Such had bottomed at 1.40% last Friday.

Changes in the dollar are mixed and confined mostly to within plus-or-minus 0.1%.  EUR/USD is unchanged.  $/JPY up 0.1%.  $/Swiss down 0.1%.

Oil (+0.8%) and Gold (+0.7%) firmed to $110.19/barrel and $814.10/ounce.

The South Korean won was defended for a second straight day with intervention and rose 1.8% to 1128 per dollar.

The Swedish Risksbank raised its repo rate by 25 basis points to 4.75% but lowered the expected future rate path and its forecasts for growth and inflation.  After 13 increases, the central bank signaled that further hikes are doubtful and that cuts should begin no later than 2H09.

Indonesia raised its key rate by 25 basis points to 9.25%.  Although the central bank did not lower its inflation forecast, analysts believe today’s move will cap the tightening cycle as commodity price pressures have eased.

The Bank of England is expected to announce no change in its 5.0% bank rate at 11:00 GMT and is unlikely therefore to release any immediate statement.

The ECB at 11:45 GMT is expected to leave its key rates unchanged, including a 4.25% refinancing rate, and to scale back its forecasts of growth but to lift its projection for inflation.  Markets wait to see if Trichet strikes a more dovish tone as he did at the August press conference.

Officials at the Bank of Korea said inflation is likely to ease in 2H08 but are not sure if such will dip below 5%.

Turkey’s central bank said they may consider easing monetary policy if lower commodity costs prove permanent.

In Japan, Yosano is challenging Aso for leadership of the LDP and to succeed Prime Minister Fukuda.  Stock and bond transactions last week generated a Y1316 billion inflow, as Japanese net selling of foreign bonds remained heavy, albeit not as much so as in the prior week.

Australia’s trade balance unexpectedly swung back into deficit in July by A$ 717 mbillion after posting a surplus of A$ 351 million in June.  Imports soared 3.9% from June and 22.3% from July 2007 on higher oil prices.

German industrial orders suffered an eighth consecutive monthly decline in July, falling 1.7% instead of edging 0.4% higher as forecast.  Orders also fell 0.7% from July 2007.  Domestic capital goods orders fell 3.9% after dropping 1.8% in June.  While foreign orders firmed 0.3% on the month, the Economics Ministry spokesperson warned such is likely to do worse in coming months.

Britain’s Halifax house price index fell 1.8% m/m and by 12.7% y/y, worst since at least 1983, in August.

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