New Developments Abroad

May 2, 2008

The dollar has strengthened since New York closed on Thursday by a further 0.9% against the yen, 0.8% against the Swiss franc, and 0.4% against the euro and kiwi. It is unchanged against the Aussie dollar and sterling and up 0.2% versus the Canadian dollar. In a sign of lessening risk aversion, the dollar has done better against carry trade-funding currencies than versus carry-trade-investment currencies. In another sign of relief, equities rose sharply in Asia and Europe. Net gains at 13:00 GMT amounted to 2.1% for Japan’s Nikkei, 1.9% in the German Dax, and 1.8% in the British Ftse. Stock market increases ranged between 1.5% and 2.1% in France, Hong Kong, Indonesia, India, and Australia. Bond yields rose too. For example, the 10-year JGB yield (Japanese Government Bond) rebounded 6.5 bps to 1.64%. Oil rebounded 1.0% but is sharply lower on the week. Gold is steady and down for the week.

A 10% jump in April of Australia’s commodity price index will sharply lift that country’s terms of trade and incomes. For a commodity exporter, this is very stimulative. Meanwhile, retail sales grew 0.5% m/m and 5.1% y/y last month in Australia. While quicker than forecast, the advance mostly reflected higher food prices. Retail sales volume fell 0.1% in the first quarter.

The Japanese monetary base sank 2.8% y/y in April compared to no change in the year to 1Q08. This is a vestige of deflation. Along with a 5.6% contraction of the BOJ balance sheet last month, this releases suggests that already weak money growth may slow further.

Japanese stock and bond transactions with non-residents generated a Y 263 bln net capital outflow last week compared to an inflow of Y1.049 tln the week before.

Euroland’s PMI index for manufacturers fell 1.3 points from 52.0 in March to 50.7. This is the weakest such has been since August 2005. The orders component of the index connoted a drop, being less than 50.0, whereas the overall index indicates very modest growth. Output prices rose to an 11-month high. In each of the four largest members of the Ezone, the PMI’s worsened. The scores were below 50 in Italy (48.2, a 35-month low) and Spain (45.2, a 76-month low). The German PMI dropped 1.5 points to 53.6, while its French counterpart slid 0.8 points to 51.1. The Greek PMI improved to 54.4 from 52.7, signaling faster growth.

Britain’s widely watched Halifax house price index posted a third consecutive month-on-month drop in April, -1.3% after -2.5% in March and -0.3% in February. The Halifax index fell 3.7% in the year to April, weakest since June 1993 and in stark contrast to house price inflation of 14.05 per annum during the six years to 1Q07. Britain’s construction PMI of 46.1 in April was the weakest reading since end-1998. U.K. personal bankrupticies rose 1.7% in the first quarter.

German retail sales valumes, excluding the automotive sector, slid 0.1% in March but expanded 4.9% saar in 1Q08. If one included the automotive sector, the increase last quarter was 3.6% saar.

French producer prices rose 0.5% in March and 5.2% y/y. Food and energy prices in the year to March climbed by 9.2% and 12.9%.

Other PMI-manufacturing readings were 56.7 in Switzerland (up from 55.3), 55.4 in China (up from 54.4), 46.1 in Denmark (55.3), 50.1 in Sweden (50.1) and 53.0 in Russia (54.6).

The U.S. monthly labor report was better than feared. Jobs dropped 20K, a quarter of what had been feared, and the unemployment rate slid a tenth to 5.0% instead of firming to 5.2% as expected. For the first time since the six months to August 2003, however, the average monthly change in employment was negative (-27K) during the latest six-month interval.


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