New Overnight Developments Abroad: Tumble in Equities Continued in Asia and Europe

October 23, 2008

Stock prices fell 7.5% in South Korea, 2.5% in Japan, 4.6% in the Philippines, 4.1% in Singapore, 4.4% in Australia, 3.6% in Hong Kong, and 3.2% in New Zealand. In Europe, the German Dax, Paris Cac, and British Ftse show losses of 3.1%, 2.4%, and 1.6%, and Swedish share prices are 2.0% lower.

Commodity currencies continue to be hammered. The U.S. dollar gained 1.3% against the Aussie dollar, 1.0% versus the Canadian dollar and 0.8% against the kiwi. The rand plumbed near a 6-1/2 year low. Dollar movements have been subdued, by contrast, against the yen (-0.3%), sterling (+0.2%), and Swissy (+0.2%). EUR/USD is unchanged. The South Korean won slumped 3.4%, however, and shot through the 1400/USD barrier. The won is off nearly 30% from 3 months ago.

The 10-year JGB yield fell 2.5 bps to 1.515%. European sovereign bond yields are narrowly mixed.

Oil firmed 1.6% but remains weak at $67.81/barrel. OPEC ministers meeting in emergency session Friday, but markets already expect output cuts to be announced. Gold fell by a further 1.6% to $723.80. The mother of all hedges is failing investors in these troubled times.

The central banks in New Zealand and Sweden each announced large rate cuts and hinted that more easing lies ahead. The Reserve Bank of New Zealand cash rate was reduced by an unprecedented 100 basis points to 6.5% in a third cut since July 24th. The former peak was 8.25%. Bank chief Bollard did say that reductions of such a large size are unlikely to be repeated. The Swedish Riksbank reduced its repo rate by 50 basis points to 3.75% just two weeks after slicing that rate by 50 basis points on October 8th. The central bank slashed its forecasts for inflation, growth, and interest rates and defended the need for a large and compressed reduction of rates.

Industrial orders in Euroland fell 1.2% m/m and 6.6% y/y in August. The drop follows increases in June and July and left the level of July-August orders below the 2Q level by 0.3% or 1.4% at an annual rate. Analysts had expected orders to tick 0.3% higher.

Japanese exports in September fell 1.3% on a seasonally adjusted basis from August. Unadjusted export volumes were 1.7% lower than in September 2007. The trade surplus amounted to just Y 95 bn compared to Y 1609 bn a year earlier. Imports soared 28.8% year-on-year. Stock and bond transactions generated a 1554 billion yen outflow last week even though the yen was well-bid.

One of the Bank of England’s staunchest policy hawks, Besley, conceded that inflation prospects have softened substantially in recent weeks. Another policymaker, Barker, said the positive effects of stimulative measures will not be felt for several months.

The volume of U.K. retail sales fell 0.4% in September, only half as much as assumed, but analyst gloom about consumption during the holidays was not alleviated. Data distortions are suspected, and on-year growth in sales of 1.8% was still at a 31-month low. The British Banking Association reported a 56.6% plunge in mortgage approvals in September from a year earlier.

French business sentiment sank from 101 last June and 91 in September to 88 in October, worst since December 1993. French consumer spending advanced 0.6% in September instead of edging marginally lower as forecast. Italy’s non-EU trade shortfall was 56.6% wider than a year before in September. The January-September deficit increased 49.7%.

Belarus, the former Soviet republic, is the latest emerging economy to be seeking aid from the IMF. Other seekers include Iceland, Pakistan, Hungary, and the Ukraine. The infection of emerging markets has surfaced as a major theme of the global financial crisis. The G20 will gather in Washington on November 15th after the U.S. election to discuss the crisis. The U.S. meanwhile is deploying another $40 bn to combat home foreclosures.

U.S. jobless claims will be reported at 12:30 GMT, followed at 14:00 GMT by the OFHEO index.

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