New Overnight Developments Abroad: Stocks Hit; Yen, Dollar and Bonds Higher

February 12, 2009

Another wave of risk aversion triggered by continuing doubts over the U.S. bank bailout sent stocks lower in Asia and Europe. The Nikkei fell 3.0%. Equities also lost 2.3% in Hong Kong, 2.2% in Singapore, 1.6% in India, and 1.2% in Australia. The Dax, Cac40, and Ftse are trading lower by 2.2%, 1.9% and 1.4%.

The dollar jumped 1.4% against sterling, 1.3% against the kiwi, and 1.2% against the Australian dollar, but the greenback lost 0.4% to the yen, which is hovering just above the 90 pivot. Some sterling weakness has been technically inspired. Remarks by the unpopular U.K. Prime Minister Brown didn’t help either. In the Aussie dollar’s case, parliament’s rejection of a A$ 42 billion fiscal stimulus and mounting risk of elections outweighed better-than-expected jobs growth.

The U.S. dollar is also firmer by 0.6% against the euro, 0.5% versus the Swiss franc, and 0.3% against the Canadian dollar.

Sovereign bond prices were lifted by risk aversion. The yield on 10-year JGB’s fell 4.5 basis points to 1.26%. Bigger yield declines occurred in Europe.

Gold has held onto yesterday’s advance and at $945/ounce shows a 29% advance from its level on November 19th. Even if Geithner’s financial rescue plan were designed as well as constructed, it is associated with way too much negative karma in the marketplace to have a chance of success. Poor growth prospects as far as the eye can see have oil prices trading limply at $35.62 per barrel.

Euroland industrial production fell by a greater-than-expected 2.6% in December and by 12.0% from end-2007.  The on-year drop had been as small as 0.5% in August.  In the final third of 2008, industrial output tumbled 22.5% at a seasonally adjusted annual rate. For December alone, output fell 10.2% in Ireland, 4.9% in Germany, 3.7% in Finland, 3.5% in Spain, 2.5% in Italy and 2.2% in Portugal.  That month production of intermediate goods, consumer durables, and capital goods tumbled by 5.7%, 2.8% and 2.5%, offsetting a 1.1% increase in energy output.

The Bank of Korea sliced its benchmark rate by another 50 basis points to a record low of 2.0%.  The previous cyclical low of 3.25% occurred from November 2004 to October 2005.  Today’s rate cut followed easings of 50 basis points in January, 100 basis points in December, and 25 basis points in November.  Two rate cuts in October totaled 100 basis points from an ill-advised peak of 5.25%, which lasted for just two months. South Korean monetary officials project rapidly receding inflation and negative growth in 2009. The Central Bank of Chile is also expected to cut its rate at least 50 bps today.

Australia reported a 1.2 thousand increase in jobs last month following no change in December. That’s buoyant compared to most other labor markets and exceeded expectations by about 22K.  Full-time positions rose 33.7K.  The unemployment rate increased three-tenths, however, to 4.8%.

More evidence surfaced of a return to full-blown deflation emerged in Japan, where domestic corporate goods prices sank 1.0% in January, the third straight drop of at least that much.  On-year wholesale price inflation returned to the red (-0.2%) for the first time since end-2003 and was 7.6 percentage points lower than the 2008 peak of 7.4% reached just six months earlier.  Import prices plunged 4.3% on month, depressed by yen strength.

A G-7 meeting tomorrow and Saturday in Rome of central bankers and finance ministers is not expected to forge a consensus to intervene to cap yen strength, however.

A day after the report of alarmingly weak Chinese trade figures, money and credit data from the world’s third largest economy showed reassuring strength in response to fiscal and monetary support.  M2 growth accelerated to 18.8% y/y from 17.8% in December and 14.8% in November.  Yuan lending advanced 33.6% in the year to January. 1.62 trillion yuan of loans last month was close to a third as much as the full-2008 amount.

Spanish real GDP fell 1.0% last quarter, the biggest drop in 63 quarters and the second decline in a row after a 0.3% dip in 3Q08.  GDP was 0.7% lower than in 4Q07, which had shown an on-year increase of 3.3%.  Growth in 2008 as a whole of 1.2% was only a third as much as the annual trend over the four prior years.

Economic confidence in South Africa worsened 2.1% in December.

Industrial production in India, Asia’s third largest economy, sank 2.0% in December, the second drop in three months.  Also in India, on-year consumer price inflation slowed 0.7 percentage points to 4.4% between the third and final weeks of January.

Romanian industrial output fell 19.2% in December.

The Thai baht appears to have received intervention support earlier today.

According to a quarterly ECB survey of price and growth expectations, both fell sharply during the past three months.  According to an INSEE survey of French investment plans, such will drop by 12% in 2009.  The anticipated drop three months ago was 3%.

Swiss consumer confidence unexpectedly ticked higher to -23 in January from -27 in October, but a downtrend will no doubt resume.

Dutch consumer prices firmed 0.3% and 1.9% y/y in January.  Irish consumer prices slid 0.1% in the year to January.

The U.S. releases retail sales at 13:30 GMT, followed by business inventories at 15:00 GMT.  Belgian national income accounts are also due today. Tomorrow sees the release of many more national GDP figures in Euroland as well as fourth-quarter real GDP for the common currency area as a whole.

Copyright 2009 Larry Greenberg.  All rights reserved. No secondary distribution without express permission.

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