New Overnight Developments: Bank of India Makes First Move to Reabsorb Liquidity

October 27, 2009

The dollar has traded down 0.5% against sterling, 0.3% versus the yen and Australian dollar, 0.2% against the euro and 0.1% relative to the kiwi.  The buck is flat against the Swiss franc and up 0.1% against the Canadian dollar, as the Bank of Canada Governor continues to sound the alarm about excessive exchange rate appreciation.

The yield on ten-year JGBs continued its upward creep, edging one basis point higher to 1.41%, while gilt and bund yields dipped by two and one basis points.

Stocks in the Pacific Rim sank in follow-through to weak North American markets.  The Nikkei dropped 1.5%, and stocks fell by 2.9% in China, 2.3% in India, 2.1% in Vietnam, 1.7% in Indonesia, 1.9% in Hong Kong, 1.6% in Australia, 0.6% in New Zealand and 0.5% in both South Korea and Pakistan.  In Europe, however, the British FTSE is up 0.4%, and the German Dax and Paris Cac have recovered 0.3% apiece.

Oil bounced 0.2% but remains below $79 at $78.84 per barrel.  Gold dipped another 0.2% to $1040.40 per ounce.

The Bank of India started to unwind unconventional quantitative easing, lifting statutory liquidity ratios by one percent to 25% after revising projected inflation in the year to March to 6.5% from 5.0%.  Key interest rates were left at 4.7% on repos and 3.25% on reverse repos, as had been expected.

Euroland M3 growth slowed more sharply than expected to 1.8% in the year to September from 2.6% in August.  M3 advanced 2.5% in the year to 3Q09, down from 8.9% in the year to 3Q08, 11.5% in the year to 3Q07, 8.2% in the years to 3Q06 and 3Q05.  In spite of the deceleration during the past year, M3 expanded 7.0% per annum during the eleven years between 3Q98 and 3Q09, which was 2.5% per annum faster than the ECB’s reference guideline of 4.5% per annum for sustained price stability.  Clearly, officials got their math on this relationship wrong, as the region has negligible inflation.

In the euro area, bank lending to the private sector fell 0.3% in the year to September.  Mortgage loans dropped 0.6%, and lending to non-financial corporations dipped 0.1%.  Private credit grew 1.1% during the past year.

Dutch business sentiment improved to -7.8% in October from -9.8% in September. French business sentiment improved much more than anticipated to minus 15 from minus 36 in September.

Australian business sentiment jumped to plus 16 last quarter from minus 4 in the second quarter.

Italian consumer confidence unexpectedly retreated to 111.7 in October from 113.6 in September.  French consumer confidence printed at minus 35 as forecast after minus 36 in September.  Finnish consumer sentiment rose to 12.3 in October from 11.7 the month before.

Swedish producer prices fell by 0.9% on month in September and by 1.6% from a year earlier.  Import prices posted a 2.1% monthly drop and a 4.0% decline from September 2008.

Home mortgages in Spain recorded a smaller on-year drop of 6.6%.  The Swiss consumption indicator ticked upward to 0.63 last month from 0.62 in August.

Lithuanian GDP recovered 1.3% in the third quarter, cutting the on-year drop to 14.3% from 20.2% in the year to 2Q09.

The Hong Kong trade deficit widened 33.5% to HK$ 29.1 billion from HK$ 21.8 billion in August.  The Filipino trade deficit in August was 80% lower than a year earlier.

Chinese investment abroad during the third quarter surpassed the year-earlier total by 190%, representing a huge acceleration from such activity in 1H09.

Releases of U.S. consumer confidence by the Conference Board and the Case-Shiller house price index by S&P are due later today.

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

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