New Overnight Developments Abroad: Equities in Massive Global Sell-off

October 6, 2008

The credit crisis has become even more acute. Euribor rates moved higher on 1-week, 3-month, and 6-month maturities.  The meeting on Saturday of leaders of Britain, Germany, France, Italy, EU Commision, Ecofin, and ECB released a statement that laid out principles but took no con concrete measures such as doing a comprehensive bad loan bailout like the United States did.  Germany, Denmark, Sweden and Austria announce deposit insurance schemes, following up on Ireland’s move before the weekend.  Bundesbank provided more short-term liquidity to Hypo Real Estate.  Norway relaxed collateral rules on bank borrowing from central bank.  BNP Paribas bought 75% of Fortis Bank in Belgium.  Injunction placed on Well Fargo’s acquisition of Wachovia.  The BOJ, ECB, SNB, and BOE continued to provide overnight dollar liquidity.  Ecofin meets today.  Italy plans to reopen the question of a regional bad debt bailout.  The presidents of France and the ECB, as well as Prime Minister Brown in the U.K., conferred by phone earlier today.

Huge and widespread stock declines led by 15% drop in Russia.  In Asia, Japan’s Nikkei fell 4.3%.  Indonesia -10%.  Hong Kong -5.0%.  China -5.1%.  Thailand -6.5%.  India -5.5%.  Singapore -5.6%.  Taiwan -4.1%.  Korea -4.3%.  Vietnam -4.1%.  In Europe, the Paris Cac, British Ftse, and German Dax are 6.4%, 6.1%, and 5.9% lower.

The dollar hit new 2008 highs against the euro, Swiss franc, Canadian dollar, Norwegian krone and Australian dollar.  The buck shows gains of 4.2% against the Aussie dollar, 1.2% against the Swiss franc, 1.0% against the New Zealand kiwi, 0.9% against sterling, and 0.6% against the Canadian dollar.  The Icelandic crown fell 3% against the euro.  Serbia intervened to support it dinar, which fell 2.5%. 

Scramble out of carry trades lifted the yen by 2.0% against the dollar.  Euro/yen sank to as low as 139.97 versus 2008 peak of 169.98 in late-July.

Sovereign 10-year bond yields are lower by ten basis points or more in the U.S., Europe, and Australia.  The 10-year JGB yields is 6.5 basis points lower at 1.38%.

Speculation continues about a possible coordinated interest rate cut involving the ECB, BOJ, Fed, BOE, and RBA.  It’s a virtual lock that the Reserve Bank of Australia will be announcing a rate cut at 03:30 GMT tomorrow.  I expect the reduction to be 50 basis points.  A 25-bp cut is possible.  In Asia, the central bank of the Philippines left its overnight benchmark rate steady as expected at 6.0%.

Oil fell briefly below $90/barrel and is 4.0% lower on balance at $90.15.  Gold climbed 1.7% to $839.50/ounce.

Consumer price inflation in Indonesia accelerated in September to a 12-month rate of 12.14% from 11.85% in August.

Unemployment slid to 9.1% in Poland in September from 9.3% in August.

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