Asian Stocks Sink on Chinese Rate Hike Speculation

November 12, 2010

Equities tumbled 6.2% in China, 2.1% in India and Indonesia, 1.9% in Hong Kong, 1.6% in the Philippines, 1.3% in Singapore, 1.1% in Thailand, and 1.4% in Japan and Taiwan.  Investors suspect the People’s Bank of China may notch up its interest rates further over this weekend.  Stocks also fell 0.8% in Australia, 0.6% in New Zealand and have dropped 1.0% thus far in France.  The German Dax and British Ftse show dips of just 0.2%.

Another rumor in the market concerns a possible EUR 80 billion rescue package for Ireland.  Soaring Irish and other peripheral bond yields were a hot topic at the now-completed summit of G20 leaders in Seoul.

Market chatter on the latest G20 statement struck an unimpressed tone.  The communique does include a shared intention not to devalue currencies competitively and to move in the direction of more flexible exchange rates.  But there are no mechanisms for enforcement, and the U.S. recommended plan for containing external imbalances with numerical targets was kicked down the road.  Further cold water was splashed on the process by the IMF, which said assumed economic growth rates in the period ahead are unrealistically high.

The dollar shows mixed changes overnight.  It has risen 0.6% against the Australian dollar, 0.4% against the Canadian dollar and 0.2% versus the British pound and Chinese yuan but shows losses of 0.4% against the euro, 0.9% against the kiwi, 0.4% relative to the yen, and 0.1% against the Swiss franc.

Ten-year German bund and British gilt yields rose five and two basis points, while the 10-year JGB settled back one basis point.

Commodities took a huge hit, with oil falling 2.1% to $85.98 per barrel and gold losing 1.4% to $1383.70 per ounce.

Hong Kong GDP advanced 0.7% last quarter, half as much as in 2Q.  Growth continues to be led by exports, which were 20.8% greater than a year earlier.  Overall GDP posted a 6.8% on-year advance.

Malaysia’s key central bank rate was left unchanged at 2.75% as expected.

Many European GDP growth rates last quarter were announced for the first time.  The euro area’s GDP as a whole went up an as-expected 0.4%, less than half as much as in the second quarter, and posted an unchanged on-year increase of 1.9%.

  • German GDP rose 0.7% versus 2Q and 3.9% from a year earlier, beating expectations.
  • Italian GDP firmed 0.2%, half as much as thought, cutting the on-year pace to 1.0% from 1.3%.
  • French growth of 0.4% was a shade slower than forecast, but the on-year comparison widened to 1.8% from 1.6%.
  • The Netherlands provided a significant negative surprise.  GDP there dipped 0.1% instead of rising 0.5% as forecast.  The year-on-year growth rate dropped to 1.8% from 2.2% in the year to 2Q10.
  • Portugal posted a big pleasant surprise with growth of 0.4% on quarter and 1.5% on year.  A small dip had been feared.
  • Spanish GDP, as reported yesterday, stalled with no quarter growth and an on-year uptick of just 0.2%.
  • Greece is in an awful recession.  Greek GDP plunged another 1.1% on quarter and by 4.5% from 3Q09.
  • Belgian GDP rose 0.5% from 2Q and by 2.1% from 3Q09.  Belgium tends to be a good proxy for the euro area as a whole and, being very trade-sensitive, tends to foreshadow future trends in the region.
  • Austrian GDP even outstripped Germany’s performance, advancing 0.9% on the quarter, but the on-year advance was 2.5%.
  • Finland did better than even Austria, posting a 1.3% quarterly increase and a 3.6% on-year gain in GDP.

Eastern Europe experienced more solid growth than the western part.  GDP between 2Q and 3Q advanced by 1.1% in the Czech Republic, 0.8% in Hungary and Latvia, 0.9% in Slovakia, 0.6% in Cyprus, 0.5% in Estonia, but just 0.3% in Bulgaria.  Romania suffered a substantial setback as GDP tumbled 0.7% after firming 0.3% in the second quarter.  Romanian GDP was 2.3% smaller than in the third quarter of 2009.

Euroland industrial production showed receding momentum as the third quarter drew to a close.  Such fell by 0.9% on month, reversing much of August’s 1.1% increase and left September’s level 0.2% below average industrial production in the third quarter.  Output increased 3.1% at an annualized rate in the third quarter after soaring 9.4% annualized in 2Q.  Among individual economies, industrial production dropped 1.9% in the Netherlands, 5.4% in Greece, 2.1% in Italy, 1.5% in Spain and 0.8% in Germany.  French industrial output was flat on the month, but troubled Ireland saw its production jump by 7.9%.

Indian industrial production slowed to an on-year 4.4% increase in September from 6.9% in August but is expected to reaccelerate in October.

Dutch retail sales were 2.9% greater than a year earlier in September.  Holland’s trade surplus that month widened 70%.

Turkey’s jobless rate of 11.4% in August surpassed expectations.

The preliminary U.S. consumer sentiment index for November will be released later today by the University of Michigan.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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