New Developments Abroad

May 1, 2008

Many financial markets in continental Europe and Asia are closed for May Day.

The dollar has recovered after an initial setback following yesterday’s FOMC rate cut and statement. The euro hit a 5-week low of $1.5497. The dollar currently shows gains since Wednesday’s N.Y. close of 1.0% against the Swiss franc, 0.7% against the euro, 0.4% against the kiwi, 0.3% against the yen, 0.5% against the Australian dollar and 0.2% against the Canadian dollar.

Ten-year JGB yields slid further to as low as 1.54% compared to a 1.675% high at the start of this week. Yesterday’s release of the Bank of Japan’s semi-annual forecasts and economic outlook was more subdued than expected, taking off the table a bias for gradually raising rates.

Ten-year U.S. Treasury yields of 3.76% have consolidated their post-FOMC announcment drop.

The Nikkei dropped 0.6%. Australia’s stock index slid 0.2%.

PMI-manufacturing indices for April were released by Britain (51.0 after 51.3 – low but stabilizing), Ireland (44.7 after 46.0, connoting contraction for a fifth straight month), Australia (52.7 versis 52.3), and China (59.2 after 58.4 in March and 53.4 in February). All of these reports showed intensifying price pressures.

U.S. Treasury Secretary Paulson went on a dog-and-pony show to tout support for a strong dollar, progress in ending the credit crunch, and confidence in the Fed. He was interviewed on CNN, Bloomberg-TV, and PBS. He believes we are closer to the end than the beginning of the market turmoil and that the dollar eventually will reflect strong long-term U.S. fundamentals. Too bad he wasn’t asked to explain the dollar’s long-term secular decline since the end of the 1960’s.

Japanese motor vehicle sales rose 3.1% from a year earlier in April, but their year-to-date total is down 1.1% compared to January-April 2007.

In yet another sign that the Australian economy is cooling, private building approvals there fell 5.7% y/y in March, nearly six times more than forecast.

South Korean total consumer prices firmed 0.6% month/month in April and 4.1% year/year, a full percentage point above the 2.5-3.5% target range. The Bank of Korea holds its next policy meeting on May 8th. There have been no rate hikes there since back-to-back moves in July and August. Korean export growth of 27% year/year in April was the strongest gain in 44 months.

Bank of Canada Governor Carney said the timing of another rate cut is uncertain. The remark is consistent with the statement released when Canada’s benchmark rate was cut by 50 basis points in April.

Buoyed by the strongest on-year growth in full-time employment since early 1993, Japanese total wage earnings rose by 1.2% year/year in March. Such had gained 1.5% in February and 1.6% in January.

The Bank of England’s semi-annual financial stability review was upbeat, saying that sub-prime losses may turn out to be only half as great as the market expects. Deputy Governor Gieve reiterated policymakers’ preference of “gradualism” as they shift to lower interest rates.

A measure of small- to medium-term business confidence in Australia fell nearly in half to +15 in the first quarter of 2008 from +27 in the previous quarter.


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