New Developments Abroad

June 27, 2008

The dollar clawed back 0.1% from the euro and sterling but otherwise extended its losses, dropping 0.8% against the Canadian dollar, 0.6% against the kiwi, 0.5% relative to the Australian dollar, 0.4% against the yen, and 0.2% against the Swiss franc.

Oil touched a new high of $141.71 per barrel overnight and is 1.0% higher on balance at $141.02.  Gold rose 1.0% to to $924.70.

Stocks plunged 5.5% in China, 2.0% in Japan, 1.9% in South Korea and 1.3% in Australia.  The Dax (-0.6%) and Paris Cac (-0.8%) are lower too. Ftse is up 0.4%.

Sovereign bond yields are mixed.  The yield on 10-year JGB’s retreated another 3.5 basis points to 1.61%. Gilt and bund yields are higher.

In Japan, core CPI accelerated to +0.7% m/m and +1.5% y/y, most since March 1998 and slightly above forecasts.  Real household spending fell 0.9% m/m and by 3.2% y/y, which was worse than anticipated.  The unemployment held steady in May at 4.0%, but the job offers ratio (0.92) and employment (-0.3%) each declined.  Total retail sales increased 0.2% y/y, but a 6.1% drop in clothing depressed large-store retail sales by 2.1% y/y.  Industrial production rebounded 2.9% m/m in May, slightly more than assumed.  Government estimates for June and July imply a 0.3% dip in 2Q but put the July level 2.6% above the 2q level.  Officials nonetheless cut their assessment of production to “slightly weak but in a flat trend.”  Corporate profits have fallen to their lowest level since the last Japanese recession.

German state CPI reports point to a 0.3% increase in June from May, which would nudge on-year inflation higher. 

The Swiss leading economic index fell further to 1.01 in June from 1.08 in May.

Overall economic sentiment in Euroland printed at 94.9 in June, down from 97.6 and below forecasts of a 96.5 reading.  Consumer sentiment fell another two points to -17, and industrial sentiment slid to -5 from -2.  The retail and construction sentiment gauges also had weaker scores.  While growth seems to be slowing more quickly than the ECB’s baseline forecast, expected inflation jumped sharply among both consumers to a reading of 31 from 28 and firms to a reading of 16 from 13.  Therefore, the central bank will not abort plans to lift key interest rates next week.

Egypt’s central bank interest rates was raised 50 basis points to 10.5%.

Euroland’s seasonally adjusted current account improved to -EUR 0.3 billion in April from -EUR 13.2 billion in March.  The unadjusted surplus in the 12 months to April of EUR 0.5 billion was smaller than the surplus of EUR 11.9 billion in the 12 months to April 2007.

French growth in 1Q08 was revised down a tenth to 0.5%, and personal consumption was flat last quarter.  French producer prices soared 1.3% m/m in May, their biggest monthly gain since at least 1999, lifting on-year PPI inflation to 6.7%.

British growth in 1Q08 was also revised down by a tenth to 0.3% (2.3% y/y, least since 4Q05).  Service sector growth was its weakest since 4Q95.  U.K. pay deals went up 3.5% y/y in the three months to May, which was less than the rate of retail price inflation.  The British savings rate of 1.1% has not been so low since 4Q59.

Spanish consumer price inflation of 5.1% y/y in June was the highest since at least 1997.

Italian hourly wage growth of 3.3% y/y in April was slightly less than CPI inflation.

New Zealand real GDP contracted 0.3% in 1Q08, cutting on-year growth almost in half to 1.9%.  New Zealand posted a trade deficit in May of NZ$ 196 million.  A rate cut by the central bank is expected in 3Q08. 


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