New Developments Abroad
June 23, 2008
The dollar rallied overnight on weak Japanese and European data. Dollar gains amount to 1.0% against the Swiss franc, 0.7% versus the euro, 0.6% against sterling, 0.5% against the yen, and 0.3% relative to the Aussie dollar. The USD dipped 0.1% against the Canadian dollar, however.
Hawkish central bank talk depressed stocks in China and India by 2.1% and 1.8%. South Korea’s Kospi (-0.9%) and Japan’s Nikkei-225 (-0.6%) fell as well. European stocks are comparatively steady, with the DAX and Ftse showing gains of 0.1% and 0.2% but the Paris Cac off 0.1%.
Sovereign bond yields are mostly lower. 10-year JGBs are off another 4 basis points at 1.715%, for instance.
Mid-east tensions kept oil prices (up 1.0% to $136.77/bbl) on the boil despite Saudi promises to raise output capacity. Gold firmed 0.4% to $907.20/oz.
A Japanese Ministry of Finance quarterly survey put corporate sentiment in 2Q08 at -15.2, lowest since at least 2Q04, with similar readings of -15.1 among large manufacturers and -15.3 among other large firms. The small-firm index worsened to -36.5. These results foreshadow significant declines in the Bank of Japan Tankan survey due July 1st. Prime Minister Fukuda is said to be considering a corporate tax cut to promote foreign investment inflows.
Australian motor vehicle sales fell 1.6% in May.
Flash PMI scores in Euroland showed contracting activity in both manufacturing (49.1 after 50.6 in May and versus street forecasts of 50.2) and services (49.5 after 50.6 and versus forecast of 50.5). The composite PMI of 49.5 after 51.1 was the lowest reading since June 2003 and down from 57.8 a year earlier.
Germany’s composite PMI fell by 1.3 points to 53.7, with readings of 52.3 in manufacturing (weakest since Oct 2003) and 53.3 in services. France’s composite PMI was at 49.1 after 51.3 in May.
In Germany, the IFO business climate index fell from 103.5 in May to 101.3 in June despite some improvement in construction. The June reading represents a 30-month low and was below forecasts of a 102.3 score. The IFO services index also weakened, dropping 3.1 points to 16.3. Officials at the IFO Institute blamed soaring energy costs and rate hike speculation for the worsening business mood and urged the ECB not to raise rates in the near term.
Bank of England policymaker Sentance, who along with Besley often dissents in favor of a more restrictive stance, said slower economic growth should encourage inflation to cool but warned that it’s essential that above-target inflation not spill over into wage awards.
In Britain, the Rightmove house price index fell 1.2% m/m in June, cutting its 12-month advance to just 0.1%.
CPI inflation in Singapore stayed at 7.5% y/y in May, less than expected and suggesting rates may not be raised there.
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