New Overnight Developments Abroad: End-of-Week Reversal in Forex, Stock, and Bond Trends

January 16, 2009

The yen weakened 1.0% against the dollar, which in turn fell by 2.0% against the Australian dollar, 1.9% versus sterling, 1.2% relative to the Canadian dollar, 1.1% against the euro, and 0.7% against the Swiss franc.

Stocks rallied after a poor week. In Asia, the Nikkei closed 2.6% higher on the day, and gains were posted elsewhere of 3.1% in India, 2.2% in South Korea, 1.8% in China, 2.1% in Thailand, 1.6% in Singapore, and .5% in Indonesia. Australian shares rose 0.6%. In Europe, the Paris Cac, German Dax, and British Ftse show solid advances of 2.4%, 2.1%, and 1.8%.

Sovereign bond yields moved higher. The ten-year JGB went up 1.5 basis points to 1.22%.

Citigroup announced a greater-than-forecast $1.72 per share loss last quarter. Bank of America’s loss was $0.48 per share. Citi received another $20 billion of taxpayer aid. Moody’s cut JP Morgan’s rating. Ireland’s government nationalized Anglo Irish Bank. Bank of Japan Governor Shirakawa declared that corporate financial conditions in Japan are worsening rapidly, and the economy is deteriorating.

The Russian rouble suffered its fifth mini-devaluation, a drop of 1.3%, in six trading sessions.

U.S. Treasury markets close early today for the 3-day MLK holiday. Beforehand, however, investors await the release of CPI at 08:30 GMT, Treasury international capital flows (TIC) at 14:00, industrial output and capacity usage at 14:15, and U. Michigan consumer sentiment at 15:00 GMT.

The capital outflow generated by Japanese stock and bond transactions with foreigners doubled to Y 1.14 trillion last week from Y 0.55 tln the week before.

The Bank of France reported a record low reading on its business sentiment gauge of 66 in December after 68 in November, and officials revised projected growth last quarter to -1.1% (not annualized) from a forecast of -0.7% held previously.

Euroland exports on a seasonally adjusted basis tumbled 4.7% in November and by 8.3% in the past four reported months. Imports dropped 2.5% and 9.1% from July. Unadjusted exports and imports were down 10.4% and 3.5% from November 2007 levels. The trade balance remained in deficit (EUR 4.9 billion) as such had been in the five previous months. The year-to-November trade balance showed a deficit of EUR 32.1 billion, an adverse swing of EUR 51.8 bln from a year earlier.

Canadian Prime Minister Harper, who for long resisted deficit spending, now says such is needed to combat “a climate of fear.”

Brazilian retail sales fell 0.7% in November and by 5.1% from a year earlier.

Euribor rates fell below 2.0% on 1-week maturities and below 2.5% on 3-months in the wake of the ECB easing yesterday.

Oil prices slid 0.5% to $35.24 per barrel, but gold rose 2.1% to $824.30 per ounce.

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