New Overnight Developments Abroad: Central Bank Rate Cuts in Taiwan and Georgia

February 18, 2009

It’s been another poor day for equities, which fell by 4.6% in China, 3.0% in Vietnam, 1.5% in Japan, 1.2% in South Korea, and 0.4% in Malaysia and the Philippines.  Stocks firmed in Indonesia and Singapore but are lower by 1.1% in Britain, 0.9% in Germany, and 0.5% in France.

The dollar lost 0.9% against the kiwi and 0.7% against the Australian dollar but is otherwise narrowly mixed, with gains of 0.3% against the yen and sterling and of 0.2% versus the Swiss franc but losses of 0.2% against the euro and Canadian dollar.

A hint by a Chinese officials that the yuan may fall was denied, but the message was one of stability, not resumed appreciation.

Gold retreated another 0.3% to $964.60 after touching a 7-month high of $974.20 during Tuesday.  Oil softened 0.2% to $34.86 per barrel.

Sovereign bond yields are lower, including a 3-basis point drop in the 10-year JGB to 1.26%.  The Bank of Japan began a 2-day policy meeting.  Following the shocking Japanese GDP news earlier this week, there’s some speculation that BOJ officials will either bump up their monthly quota of outright JGB buying or signal a reluctant willingness to reduce their target interest rate to zero, something they have resisted until now.

Taiwan reported a greater-than-expected 8.4% on-year decline in GDP last quarter after -1.1% in 3Q, and officials increased their projected decline for 2009 growth to minus 3.0% from -2.1%.  Taiwan’s Central Bank in response cut its benchmark rate by 25 basis points to 1.25%, eclipsing the old cyclical low from late 2004 and touching the lowest level in over 55 years.  Central bank officials indicated a desire not to cut rates all the way to zero.  The hardest-hit economies in the global recession have not been those with exposed banks but rather ones that depended heavily on exports such as Taiwan, Singapore, South Korea and Japan.  Within Europe, likewise, Germany has suffered more than most.

Japan’s index of leading economic indicators was revised slightly.  The diffusion index for the leaders has punched in above 50 in just one month since June 2007 and had a 9.1 value in December.  The coincident and lagging diffusion indices that month were each at zero.

Australian real retail sales rose 0.8% last quarter, slightly less than forecast.  Imports plunged 14.2% in the year to January.

South African real retail sales edged down just 0.1% in December, a better result than feared.  There were still declines of 2.1% last quarter and 2.2% in 2008 as a whole.

The Central Bank of Georgia cut its refinancing rate to 7.0% from 8.0%.  There also had been a 100-basis point reduction in December.  Central bank officials warned of a rising danger of deflation.

China posted a current account surplus in 2008 of $440 billion, 18.3% wider than in 2007. Beijing officials said they are exploring new ways to deploy their nearly $2 trillion of reserves.  Input costs for corporate goods in China fell 4.2% in the year to January following on-year changes of -3.1% in December, -0.4% in November, +4.0% in October and a 2008 high of 10.3% in the year to April.

Greenspan called this the worst recession since the depression.  Stark of the ECB opined that policy stimulus would begin to get felt in 4Q09.

In Britain, the business group, CBI, which yesterday sharply worsened its 2009 growth forecast to -3.3%, released its monthly survey of industrial trends.  It had a much worse-than-expected orders index of -56 after -48 in January.  Output expectations were their worst since September 1980, and price expectations touched their lowest point since November 2003.

Anxiety is climbing that the debt ratings of several Eastern European economies (such as The Czech Republic, Hungary and Poland) may be downgraded.

U.S. import prices, industrial production, and housing starts figures will be released todayFOMC minutes and Canadian wholesale sales are due as well.  A key focus will be U.S. stocks.  The DOW closed Tuesday at 7752.60, just 31 hundredths of a point above the November 20th cyclical low.  Many believe that the Dow will fall below 7K eventually if the old support doesn’t hold. I expect we will see quotes below 6K down the road.  If the Dow were to fall as much as the Nikkei has from its peak of 38,916 at end-1989, it would plunge all the way to 2742.  If one sees similarities between Japan’s crisis and the bursting equity bubble in the United States, this bear market is far from over.

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

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