New Overnight Developments Abroad: Return of Risk Aversion

October 28, 2009

Many signs that risk aversion is back.  Stocks fell strongly.  Commodity currencies are weaker.  The yen is stronger.  Bund and gilt yields are down.

The dollar climbed 1.2% against the Australian dollar, 1.1% against the kiwi, and 0.6% relative to the Canadian dollar.  It also rose 0.3% against sterling but is 0.9% weaker versus the yen.  No change in EUR/USD, and the Swissy has edged 0.1% higher.

Stocks continue to retreat rather sharply, falling 1.4% in Japan and Australia, 2.4% in South Korea, 1.6% in Taiwan, 2.9% in Indonesia, 1.5% in Thailand, and 1.7% in Singapore.  The German Dax, Paris Cac, and British Ftse each show losses of 1.5% at this hour.

While the 10-year JGB yield increased another two basis points to 1.43%, comparable bund and gilt yields are off by two and three basis points.

Oil is down 0.8% at $78.93 per barrel, while gold is steady at $1035.40 per ounce.

Japan’s Shoko Chukin index of small business sentiment failed to rise in October for the first time since January, instead edging a tenth lower to 43.4.  That is still above 38.0 at midyear and a low reading of 24.8 in January.  A top Finance Ministry official of the new government said it’s too early for the Bank of Japan to be raising interest rates.

Japanese retail sales posted an on-year drop of just 1.4% in September, the smallest decrease since November 2008.  Sales fell 1.9% in the year to 3Q after dropping by 2.8% in 2Q and by 3.9% in the year to 1Q.  Large-store sales fell 5.6% in the year to September, with clothing off 10.2%.  The 5.6% decline was the smallest since January and followed a 6.8% drop in the year to August.

Australian consumer price inflation in 3Q slightly exceeded expectations.  Headline CPI went up 1.0% from 2Q and by 1.3% from a year before.  The average of the central bank’s two gauges of core inflation was 3.6%, down from 3.9% in 2Q but above street expectations of 3.4%.  Inflation last quarter was paced by household goods and transportation.  Skilled job vacancies in Australia rose 1.9% in October but were still 44% lower than in October 2008.

South African consumer prices edged down for a seventh straight month, dropping 0.3 percentage points to 6.1% in September compared to a target range of 3-6%.

Business sentiment in New Zealand retreated to 48.2 in October after jumping from 34.2 in August to 49.1 in September.

Three German states have reported October consumer prices that are roughly in line with expectations.  The data suggest no change from September and a tiny on-year decrease.  German import prices sank 0.9% in September and by 11.0% from a year earlier.  Non-oil import prices fell 7.4% on year.  Export prices dropped 3.2% from September 2008, the same 12-month decline as posted in August.

Italian business sentiment improved to 77.1 in October, best since September 2008, from 74.3 the month before, 71.7 in July, and 69.8 in June.

Spanish retail sales fell 3.4% in the year to September after a 4.0% drop in the year to August.

The Conference Board index of leading economic indicators for the euro area increased 1.2% in September following gains of 1.7% in July and 1.8% in August.  A separate forward-looking regional gauge (the EuroCoin indicator) improved to 0.33 in October from 0.07 in September.  Positive GDP growth in both 3Q and 4Q09 is suggested.

Swedish retail sales firmed 0.2% last month and rose 2.7% from September 2008.  Consumer sentiment in Sweden rose more than forecast to 7.5 in October from 5.6 in September.  Retail sales in Finland fell 1.4% in the year to September, a smaller drop than recorded in the year to August.

Slovakian producer prices fell 5.2% in the year to September.  That economy posted weaker consumer confidence in October of minus 30.4 after minus 24.3 in September but better business sentiment of minus 8.7 after minus 12.3.

As expected, Bank Negara Malaysia left the key central bank policy rate at 2.0%, observing contained inflation and an opportunity to nurture the incipient recovery.  The last rate cut was implemented in February, and the peak prior to November had been a 3.5% rate.

The U.S. reports durable goods orders, new home sales, and oil inventories today.  Central Banks in Norway and Poland will be announcing interest rate decisions.  There is some chance that Norway will become the third central bank to raise rates following Israel and Australia.

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

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