New Overnight Developments Abroad: Dollar and Yen Stronger

December 9, 2008

Dollar/yen is unchanged. Both rose 2.0% against the Australian dollar, 1.4% against the kiwi, 1.0% against the Swissy and sterling, and 0.9% versus the euro. Among commodity currencies, the Canadian dollar (-0.2%) has been resilient ahead of the Bank of Canada rate cut announcement due at 14:00 GMT.

The Nikkei firmed 0.8%, but stocks fell 0.8% in Australia, 1.9% in Hong Kong, and 2.6% in China. Other Asian equities rose: Singapore +5.8%, Indonesia +5.3%, and the Philippines +1.4%. In Europe, the Paris Cac, British Ftse, and German Dax are trading 2.3%, 1.6%, and 1.3% higher.

Japan’s auction of 5-year JGB’s went as expected, and the 10-year yield is flat at 1.385%. Gilt yields are lower.

Oil is steady at $43.64/barrel after a sharp rise on Monday. Gold firmed 0.3% to $771.60 per ounce.

Japanese third-quarter GDP growth was revised sharply lower to -1.8% saar from -0.4% reported initially. GDP was 0.5% below the 3Q07 level. Nominal GDP fell 2.7% saar and by 2.1% from a year earlier. Investment slumped 7.8% saar. Net exports exerted a drag.

Australian business conditions slid 6 points to -17, while business confidence dropped 10 points to -30. Both readings were the worst since the early 1990’s.

British industrial production slumped 1.7% m/m in October, three times greater than expected and by 5.2% from October 2007, the biggest on-year drop since April 1991. Factory output fell 1.4% from September. Mining production declined 7.3%.

The British Retail Consortium reported a 2.6% on-year decline in same-store sales last month. The DCLG gauge of British housing prices fell 2.5% in October and by 7.4% in the year to October, down from a 5.1% on-year drop in September. U.K. mortgage approvals swooned 52% from a year ago. The RICs house price balance ticked up to -76.5 from -81.0 in October, but sales were at a record low.

The French trade deficit of EUR 7.06 billion in October constituted a record gap despite a better energy balance and was 18.4% wider than in September. The deficit had been forecast to shrink mildly.

The German current account surplus in October amounted to EUR 15.0 bn, similar to EUR 15.4 bn in September and EUR 15.2 bn in October 2007. The seasonally adjusted merchandise trade surplus rebounded 20.6% to EUR 15.8 bn, as exports slid 0.5% but imports fell much more (-3.5%). Real manufacturing turnover in Germany fell 3.3% in the year to October, depressed by a 4.5% drop in the foreign component.

The British goods trade gap in October of Gbp 7.75 billion was wider than forecast and 5.3% greater than in September.

The German ZEW expectations index of investor sentiment improved surprisingly to -45.1 in December from -53.5 in November, but don’t count on a similar rise in the IFO index because the current conditions ZEW index worsened to -64.5 from -50.4. The ZEW indices for Euroland mirrored the German figures, with expectations improving to -46.1 from -54.0 and conditions weakening to -71.5 from -58.9.

Swedish consumer prices fell 0.8% in November and rose by 2.5% on-year, down from 4.0% in the year to October.

The Swiss jobless rate held steady in November at 2.7%.

A Japanese paper reported that the government is considering another fiscal stimulus of as much as Y 20 trillion (over 3% of GDP). Japan’s index of leading economic indicators fell 4.2 points in October. The coincident index dropped 2.5 points. Expressed as diffusion indices, they both had a score of zero.

Real GDE in South Africa rose 1.0% saar last quarter. The current account deficit amounted to 7.9% of GDE.

Bank of Korea minutes from an emergency meeting on October 27th revealed a 6-0 unanimous vote in favor of the 75-bp rate cut decided then. Another cut of 25 bps to 4.0% followed on November 7th, and the central bank is expected to ease yet again on December 11th.

Concern about China is rising. An advisor to the central bank said exports in November may be lower than a year earlier, and that industrial output may have risen just 5% versus 8.2% y/y in October. The Governor of the Reserve Bank of Australia singled out China’s slowdown, saying growth could be worse than 8%.

U.S. lawmakers are still working on the details of a bailout of the automakers to avert bankruptcies at yearend.

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