New Developments Abroad

May 27, 2008

New burst of carry trading is reflected in the dollar’s drop of 0.3% against the kiwi, 0.2% versus the CAD and 0.1% against the Aussie dollar, juxtaposed against USD gains of 0.5% against the yen, 0.2% against the Swissy and 0.1% against the euro. USD also up 0.3% against sterling.

Ten-year JGB yield hit a 9-month peak of 1.785% but settled back to 1.76%, unchanged on net. A 20-year JGB auction drew the highest bid:cover ratio (4.29) since May 2005.The Nikkei advanced 1.5%, but the Dax (-0.5%) and Paris Cac (-0.7%) are lower. Stocks rose in China, Hong Kong and South Korea but fell in Indonesia. Ftse and Aussie bourses firmed 0.1%.


Oil advanced 0.7% to $133.12/bbl. Gold edged 0.2% lower to $924.20/oz, however.

Details released on 1Q growth in Germany show main thrust from investment. Consumption and government spending also positive, and inventories augmented growth by 0.7 percentage points. Net exports exerted a 0.2% point drag. Overall GDP growth was confirmed at 1.5% not annualized and at +2.6% y/y adjusted for working days. Negative growth in 2Q seems likely.

German consumer confidence fell to 4.9 in June from 5.6 in May, with declines in all components of the index. French business sentiment slumped to 102 in May, weakest since December 2005, from 106 in April and 108 in March. Italian business sentiment unexpectedly improved to 89.6 in May from an upwardly revised 87.6 score in April. The Street looked for readings of 105 on French business sentiment and 86.5 on Italian business sentiment.

A report out of Japan claims that government will nominate hawkish economic professor Kkeo to the BOJ Board. Opposition said to be unhappy with the choice and may veto it. Japanese corporate service prices edged up 0.1% m/m and 0.5% y/y in April. Global auto output in the year to April rose 23.9% at Nissan, 8.8% at Toyota and 5.8% at Honda but fell 3.5% at Mitsubishi.

Minutes reveal that two of six Bank of Korea Board members wanted to cut the 5% benchmark rate at their April 10th interest rate meeting.

South African GDP grew 2.1% saar in 1Q, least since 3Q01, and 4.0% y/y.

Several ECB Council members today made hawkish remarks about resisting inflation.

British BBA data for April showed 39.4% on-year decline in mortgage approvals but slight rebound from 10+ year low in March.

People’s Bank of China Governor Zhou promised to prevent excessive inflation. Former Fed Chairman Greenspan sees a diminishing chance of a severe U.S. recession.


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