New Overnight Developments Abroad: Intensifying Slowdown in China

December 10, 2008

Stocks rose solidly in Asia, including gains of 3.2% in Japan, 5.6% in Hong Kong, and 5.4% in India, but they are lower in Europe with losses of 1.2% in Switzerland, 1.0% in Sweden, 0.9% in the U.K., 0.5% in France and Italy and 0.3% in Germany.

The dollar advanced 0.7% against the yen but is down 0.8% versus the kiwi, 0.6% against the Canadian dollar 0.3% relative to sterling, and 0.1% against the euro.

The 10-year JGB yield firmed 2.5 basis points to 1.415%, but bund and gilt yields are lower.

Oil firmed 2.2% to $43.00/barrel. Gold rose 1.4% to $783.10 per ounce.

China reported on-year November declines of 17.9% in imports and 2.2% in exports after gains in the year to October of 15.6% and 19.2%. Analysts were looking for on-year advances of still more than 10% in both exports and imports. The trade surplus was at a record high of $40.1 billion after $35.2 bn in October, which also had been a record. Foreign direct investment in China plunged 36.5% in the year to November but was still 26.3% higher in January-November than a year before. Chinese producer price inflation slumped to 2.0% year-on-year from 6.6% in October and a peak of 10.1% in August. The abruptness of this drop fanned fears of deflation. The yuan rose for a sixth consecutive day, apparently as officials are worried about capital outflows.

Foreign orders for Japanese machinery plunged 37.2% between September and October, and core domestic private machinery orders, -4.4%, were also weaker than forecast. Japanese domestic corporate goods prices fell 1.9% in November, cutting their 12-month rise to 2.8% from 5.0% in October and a peak of 7.4% in August. Raw material prices sank 5.3% in the year to November, a huge swing from a gain of 15.1% in the year to October. Final goods prices fell 1.2% year-on-year, suggesting deflation is back.

Responding positively to a big central bank rate cut, Australian consumer sentiment recovered to 92.0 in December from 85.5 in November. The report in particular revealed a greater appetite to undertake big-item purchases. Housing finance in Australia firmed 1.3% in October and home mortgage approvals also went up. But a leading gauge of the job market worsened to -0.189 from -0.078 in November.

New Zealand’s terms of trade worsened 2.3% in the third quarter, as an 11.1% rise of import prices outpaced the 8.6% increase in export prices. Central bank Governor Bollard warned that further interest rate relief in New Zealand would be contingent upon a drop in inflation.

French industrial production plunged 2.7% m/m in October and by 4.1% from October 2007, led by a 14.3% drop in auto output. Italian industrial production dropped 1.2% in October and by 6.9% from a year earlier. Italy released details of 3Q GDP, which fell 0.5% from 2Q and 0.9% from 3Q07. Investment fell by 1.9% (not annualized) last quarter, and net exports exerted a drag of 0.3 percentage points on GDP growth. The French and Italian industrial output data were much worse than assumed and follow news on Monday that German industrial production dropped 2.1% in October. Greek industrial output fell 4.5% in the year to October.

Sweden reported October declines of 7.1% in industrial production and 14.8% in industrial orders.

The NIESR Institute estimates that British GDP fell 1.0% in the three months to November and will likely drop more than 1% in the fourth calendar quarter.

German wholesale prices sank 3.3% m/m in November, most in 40 years, and recorded a 12-month decline of 0.8% after rise 3.6% in the year to October.

South Korean unemployment rose to a 16-month high of 3.3% in November. Jobs growth over the past year was the least in five years. The Bank of Korea is expected to cut interest rates tomorrow by 50 basis points. So are the central banks in Switzerland, South Africa and possibly Taiwan. Some central banks in South America have scheduled policy meetings but are unlikely to change interest rates. Inflation is stickier in that region.

Danish CPI inflation fell a full percentage point to 2.7% from 3.7% in November. Norwegian October consumer prices slid 0.6% m/m and to 3.2% y/y from 5.5%. Producer prices in Norway plunged 5.2% m/m in November. Overnight data point to a deeper downturn in Scandinavia and further monetary policy easing there.

South African real retail sales fell 2.3% in the year to October.

Investor sentiment in Switzerland improved in December, mirroring trends in Euroland, but such remains very depressed and is likely to fall in the future.

U.S. lawmakers have a tentative agreement for a $15 billion band-aide to avert a bankruptcy of Detroit automakers later this month. The U.S. Treasury will be reporting a $170-180 billion budget deficit for November later today. U.S. wholesale inventory data also get released.

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