New Overnight Developments Abroad: Talk of a BoJ Rate Cut

October 29, 2008

According to the Nikkei press quoting informed sources, the BOJ will consider a 25-bp rate cut this Friday. Today, the Fed and Norges Bank are expected to implement rate cuts of 50 basis points. On November 6th, the Bank of England and ECB are likely to reduce their rates.

U.S. S&P futures indicate a lower open for stock prices. Asian markets were mixed. Japan’s Nikkei-225 rose 7.7%, and bourses advanced by 4.5% in the Philippines and 2.7% in Vietnam. But stocks fell by 3.5% in Thailand, 3.0% in South Korea and 2.8% in China. A drop in VW dragged down the German Dax by 2.7%, but the Paris Cac (+6.1%) and British Ftse (+4.0%) are impressively higher.

The dollar is broadly lower, with drops of 1.6% against the kiwi, 1.3% versus the Canadian dollar, 0.9% against sterling, 0.7% against the Swissy, 0.6% against the yen and 0.5% against the euro. The dollar is lower against the won and several East European currencies like the forint and leu.

The yield on 10-year JGB’s slid 5.5 basis points to 1.495% in response to the Nikkei’s rebound.

Commodity prices rose. Oil advanced 3.6% to $65.01/barrel, while gold gained 1.0% to $748.10/ounce.

CPI reports from four German regional states all show monthly declines in October, ranging from -0.1% in Saxony to -0.7% in Hesse (where an education fee was scrapped). Data imply an average 0.2% drop for all Germany, about as expected, and a sub-3% on-year increase. German real engineering orders rose 2.0% y/y in September but fell 5% in the year to 3Q08.

House prices in Spain plunged 36.8% in the year to August, much more than the 26.3% in the year to July.

Hungary secured a $25 bn aid package from the IMF.

Japanese industrial production rose 1.2% in September but fell 1.2% in 3Q after drops of 0.7% in 1Q and 0.8% in 2Q. Forecasts suggest that output in October-November will be 1.3% below the 3Q level. As a result, METI officials downgraded their assessment of industrial production to “on a moderate downtrend” from “has weakened.” BOJ Deputy Governor Nishimura warned of mounting downside growth risks. Some large Japanese banks are looking to rebuild depleted reserves.

British mortgage lending revived to a greater-than-expected Gbp 2.167 billion in September after posting the first net repayment (-Gbp 691 million) in August. Mortgage approvals ticked up for the first time in 15 months but were down over 60% from September 2007. M4 growth accelerated to 12.4% year-on-year from 11.5% in August.

South African consumer price inflation slowed to 13.0% y/y in in September from 13.6% in August. Credit growth of 16.4% y/y and M3 expansion of 15.2% y/y were also lower than in August.

China’s current account surplus of $191.7 in the first half of 2008 was at a slightly higher annualized pace than the 2007 surplus despite a shrinking trade surplus. Net investment income in 1H08 of $38.3 bn exceeded the full-2007 total.

New Zealand’s trade gap in September was more than double expectations. Such widened to NZ$ 1.183 bn from NZ$ 572 million in September 2007.

Sweden’s Riksbank unveiled a new temporary credit facility to promote bank lending to corporations.

The PBOC unexpectedly implemented the third easing of Chinese monetary policy since September 15th, announcing cuts of 27 basis points each in its 1-year  deposit rate to 3.60% and its lending rate to 6.60%. Cuts of a similar size were unveiled on September 15th and October 8th. On each of those occasions, reserve requirements were relaxed as well. Officials stopped their gradual rise of the yuan against the dollar around mid-2008.

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