New Developments Abroad: German Industrial Output Took a Tumble

July 7, 2008

The dollar has advanced by 0.8% against sterling, the yen, and kiwi, by 0.7% against the Australian dollar and Swiss franc, by 0.6% against the Canadian dollar and by 0.3% against the euro.  The Nikkei rose 0.9%, breaking a 12-session losing streak, longest since 1954.  Stocks also rose by 5.1% in China, 2.3% in Hong Kong, and 1.8% in South Korea.  European equities have been subdued by comparison, with no change in the British  Ftse and a 0.3% uptick in the German Dax.

Oil fell 1.7% to $142.79/bbl and gold dropped 1.1% to $923.70, as G8 leaders held their annual summit in Hokkaido, Japan.

The yield on 10-year JGB’s recovered 5 basis points to 1.695%.  Such had been as low as 1.615% last Friday.  Other sovereign bond yields are mostly lower.

German industrial production, which had been forecast to rise modestly, instead fell 2.4% in May.  Despite some adverse calendar-day effects, this figure left production in April-May 1.9% below the 1Q level.  The second quarter will see industrial output fall for the first time since 4Q04.

British industrial production and factory output fell in May by 0.8% and 0.5%, respectively.  Each had been forecast to dip only 0.1%.  A 1.6% drop in industrial production from May 2007 was the greatest on-year decrease since December 2005.

President Bush in Tokyo in response to a question about possible future intervention answered merely that “the U.S. believes in a strong dollar policy and believes the strength of our economy will be reflected in the dollar.”

The ECB rate hike last week received verbal applause from German officials but veiled criticism from their French counterparts, who complained that such would promote euro overvaluation and dollar weakness.

Australia’s construction PMI bounced to 40.3 in June from 36.9 in May but was below a score of 50 for a fourth straight time.  Australian job ads slumped 3.0% m/m (most in 19 months) and by 6.2% in the year to June.

Japanese international reserves climbed $4.6 billion in June and by $4.7 billion per month in the first half of 2008.

The president of OPEC warned that dollar weakness would keep oil prices pressing upward.

Chinese Premier Wen asserted the fight against inflation is a top priority.

An index of investor sentiment toward Euroland posted its greatest month-to-month decline, falling to a 37-month low of -9.3 in July from +5.2 in June.

Swiss unemployment dipped a tenth to 2.3% in June, lowest since June 2002, but it is in danger of drifting higher in the future.

The Governor of the Bank of Japan, Shirakawa, said corporate profits are falling and export growth is slowing.  A regional survey by the central bank found slower growth in 8 of Japan’s 9 regions, blaming the surge in raw material costs.

A suicide bombing in Afghanistan has killed over 40 people near the Indian embassy in Kabul.

Taiwan’s CPI accelerated in June to 5.0% y/y from 3.7%.  Russia’s CPI jumped by 1.0% m/m in June and by 8.7% cumulatively in 1H08.

Consumer confidence in New Zealand fell to a record low.  A recession there for the first time in ten years appears very likely.  The Treasury in fact concedes that a recession may already have begun.


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