New Overnight Developments Abroad: Concerted Central Bank Injection of Dollar Liquidity

September 18, 2008

At 07:00 GMT today, the Fed, Bank of Canada, ECB, Bank of England, Swiss National Bank and Bank of Japan announced a $180 billion increase in their swap credit lines to $247 billion.  The plan will enable these banks to boost dollar liquidity to ease the worldwide shortage of dollar funding.  The 3-month euribor lending rate nonetheless hit an 8-year peak of 4.99%, and the 6-month euribor rate reached an all-time high of 5.22%.

Central banks added $14.05 billion in Britain, $23.9 billion in Japan, A$ 3 billion in Australia, $10 billion in Switzerland, and EUR 25 billion in Euroland. The Bank of Korea also added dollars.

Morgan Stanley is reportedly in preliminary talks to find a buyer.  Concerns persist about Washington Mutual.

Stocks In Asia got hammered before the announced concerted central bank plan to boost dollar liquidity.  Japan -2.2%. China -1.7%.  Taiwan -2.7%.  South Korean equities -2.3%, and the won fell again.  New Zealand stocks -3.4%.  Australia -2.4%.  Sri Lanka -2.3%.  Vietnam -4.1%.  But bourses in Indonesia, India and Singapore rose by 1.0%, 0.5%, and 0.4%.

European stocks have rallied, with gains of 1.0% in Germany, France, and Switzerland.  British Ftse is 1.9% higher.  All eyes are on how U.S. stocks respond.

Russian equity trading was suspended for a second straight day.

The People’s Bank of China signaled an intent to let interest rates fall more aggressively than thought previously.

The dollar has lost 2.5% against the kiwi, 1.3% against the Canadian dollar, 1.1% versus the euro, 0.8% against the Swiss franc, 0.5% relative to the Australian dollar, and 0.2% against sterling.  The dollar edged up 0.1% against the yen.

British real retail sales rose 1.2% in August compared to a forecast gain of 0.5% and following a 0.9% increase in July.  Sales were buoyed by seasonal discounts especially on clothing but look unrepresentatively high.  Survey evidence from High Street paints a much worse picture.  The volume of retail sales in June-August still fell 0.8%, the worst three-month move from prior three months since November 1990.

The U.K. public sector net borrowing requirement showed its largest August deficit (Gbp 10.371 billion) since 1993.  On-year M4 growth accelerated to 11.5% in August from 11.2% in July.

Japan’s tertiary index for service-sector activity rose 1.2% in July following a 1.0% June decline.  The Reuters monthly synthetic Tankan diffusion index fell 4 points to -10 for non-manufacturing (lowest in 57 months) but firmed 2 points to -14 for manufacturing in September.

The Bank of Japan released its monthly economic assessment in which business spending was downgraded to “has declined somewhat lately as corporate profits decreased mainly due to a deterioration of the terms of trade.”  Exports remain a concern.  Japanese commercial land prices, which posted their first rise since 1991 in 2007, fell by 0.8% in the year to July 2008.  Residential land prices dropped 1.2% in the past year.

The Swiss National Bank’s quarterly interest rate announcement and statement are due at 13:00 GMT.  U.S. jobless claims arrive at 12:30 GMT.

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