New Overnight Developments Abroad: Stocks Fall After G-20 Talks Only of Broad Objectives

November 17, 2008

Stocks fell 2.5% in Australia, 2.2% in Indonesia, 2.0% in Vietnam, 1.9% in the Philippines, 1.4% in Germany, 1.3% in France, 1.2% in Britain, 1.0% in India and 0.9% in South Korea. Exceptions to this trend were Japan (+0.7%) and China (+2.2%).

Group of 20 leaders did not announce any specific coordinated policy initiatives. They will meet again by April.

The dollar is mostly lower, with drops of 1.1% against sterling, 0.8% versus the yen, 0.5% against the euro, 0.4% relative to the Swiss franc and 0.1% against the kiwi.

Oil fell by a dollar (or 1.8%) to $56.04. The U.S. currency advanced 1.4% against the Australian dollar and 0.4% versus the Canadian dollar. The Indonesian rupiah fell over 2% against the dollar after news that GDP slowed to 6.1% y/y in 3Q, which was a six-quarter low. Gold remains steady at $743.40/ounce.

Sovereign bond yields are mixed. Gilts up 4 bps. 10-year JGB’s off 0.5 bp to 1.495%.

Japan confirmed a recession, as real GDP slid 0.4% saar in 3Q after a downwardly revised 3.7% annualized plunge in the second quarter. Compared to 3Q07, real GDP edged down 0.1%, and the GDP deflator fell by 1.6%, same as its on-year drop in 2Q. The Tertiary index measuring Japanese service-sector activity fell by 0.6% in both September and 3Q08. Wages rose 0.2% y/y in September after a gain of 0.1% in the year to August.

Australian retail sales volume firmed only 0.1% in the third quarter, much less than anticipated, following a 0.2% drop in 2Q. With a still-high cash rate of 5.25%, Australia is flirting with a recession.

Britain’s Rightmove house price index fell 2.9% in November from October, its greatest monthly drop since December 2006, and by 7.1% from November 2007, up from a year-over-year decline of 4.9% in October. The index has fallen 8.1% in the past six months.

The British CBI forecasts a 1.7% drop in real GDP next year, most in several decades.

Short-term money market rates in Euroland (Euribor) continued to settle back. The 3-month is now at 4.191%, lowest since July 2007 before the crisis.

Euroland’s trade deficit on a seasonally adjusted basis was EUR 5.7 bn in September, identical to August’s result. The unadjusted balance was in deficit by EUR 5.6 bn compared to a surplus of EUR 2.9 bn in September 2007. From a year ago, imports soared 16.1% in September and 10.3% in January-September.

French business sentiment, according to the Bank of France index, reached its lowest level since the start of that series in 1987. The 77 reading in October was down from 86 in September. The central bank projects a 0.5% decline in GDP this quarter following a 0.1% uptick in 3Q08.

Nishimura of the Bank of Japan said global financial market tensions are rising. Weber of the Bundesbank and ECB said he is not confident about fourth-quarter growth and that falling inflation creates scope for easing monetary policy. U.S. President-Elect Obama pledged to do whatever it takes to revive economic activity and that such is a higher near-term priority than cutting the budget deficit. Sweden’s Finance Minister Borg revealed that new measures for banks are under consideration. Canadian Prime Minister Harper hinted that another fiscal stimulus and an end to a string of 11 consecutive budget surpluses may be coming.

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