New Developments Abroad: Poor British Data

July 18, 2008

The dollar is unchanged against the euro, Canadian dollar, kiwi and Australian dollar, but it rose 0.4% against sterling and the yen.  Swissy is up 0.2%.

The Nikkei (-0.7), Paris Cac (-0.8%), British Ftse (-0.6%) and Dax (-0.3%) traded lower.  Australian equities fell 1.2%, but China’s CSI 300 rose 3.6%.

The 10-year JGB edged off 0.5 basis point to 1.58%.  Its bund counterpart slid 1 basis point.

Oil recovered 1.8% to $131.59/barrel after plunging 12.2% from $147.27 on July 11th to $129.29 close yesterday.  Gold is 0.9% weaker at $961.80/oz.

Britain posted its largest quarterly budget deficit, Gbp 20.35 bln, in 2Q08 since at least 1946.  The public-sector net cash requirement of Gbp 25.45 bln last quarter was up 101% y/y.  Debt as a share of GDP reached its highest level since July 1999.  British M4 on-year growth accelerated to 11.5% in June from 10.0% in May.  Gross mortgage lending in June plumbed to its lowest level since February 2006 according to CML data and was down 32% from June 2007.  Bank of England Deputy Governor Gieve said a British recession cannot be ruled out but that elevated expected inflation constrains monetary policy.

Australian export prices soared 13.5% between 1Q08 and 2Q08, outstripping a 1.4% increase in import prices and implying a terms of trade advance of about 12%.  In addition to tax cuts this month, officials are watching for the stimulative impact of the higher terms of trade to gauge the timing and direction of their next interest rate change.

German producer prices went up 0.9% in June, lifting the 12-month increase from 6.0% to 6.7%, most since March 1982.  Non-energy PPI firmed to 3.0% y/y, while the energy component rose to 17.9% y/y.

ECB President Trichet expects weak growth to extend into 3Q08 but anticipates improvement in 4Q.  Keeps emphasis on inflation containment.

Euroland’s seasonally adjusted trade balance swung to a deficit of EUR 1.5 bln in May from a EUR 1.4 bln surplus in April.  Exports sank 3.4% m/m.

Whereas BOJ minutes from the policy meeting in mid-June appeared to express more concern about downside growth risks than upside price risks, Governor Shirakawa said policymakers are weighing those risks of higher inflation but lower growth evenly.

An official from the Bank of Korea hinted at possible new action if the won fails to reflect improving fundamentals. Now trading at 1013.5 per dollar.

The Bank of Canada’s Policy Update yesterday projects a further rise of inflation in the short term but struck a reasonably complacent tone.

China’s property outlook index slid another 0.3% in June and was 3.3% below its level of November 2007.

A Polish monetary officials hinted interest rates may be hiked during 3Q08.


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