New Developments Abroad: Oil Price Drop Extended

July 23, 2008

Oil prices fell another 1.9% to $125.95/barrel overnight, extending their decline since the July 11 peak to 14.5%.  Gold dropped 1.5% to $934.70/ounce.

The dollar is higher except for a 0.2% dip against sterling.  Gains range from 1.0% versus the kiwi to 0.7% against the Aussie dollar, 0.3% relative to the yen, euro and Swissy, and 0.2% against the Canadian dollar.  The yuan again slid, amid mounting speculation about a shift in Beijing currency policy.  China’s equity market fell 0.7%, while other Asian bourses recorded solid gains of 2.7% in Hong Kong, 2.0% in Korea, 3.1% in Singapore, 5.9% in India, 1.0% in Japan and 2.7% in Malaysia.  The Australian stock index gained 2.0%. In Europe, the Ftse and Cac40 are trading 1.4% higher, while the Dax is up by 1.1%.

Sovereign bond yields are higher, including a 4-basis point advance in the 10-year JGB to 1.65%.

Australian consumer prices jumped by 1.5% in 2Q08 from 1Q08, which was the biggest quarterly gain in 2 years and a little more than anticipated.  Year-over-year inflation rose to 4.5%, most since 2001, from 4.2% in 1Q, 3.0% in 4Q07 and 1.9% in 3Q07.  Core inflation, which is targeted at 2-3%, increased to 4.4%, most since 1991, from 4.2% in 1Q08.  Central bank officials have signaled a willingness to overlook this spike in inflation so long as growth continues to weaken significantly.  No rate change is likely through the balance of 2008.  Australian skilled job vacancies tumbled another 2.7% in July.  Y/Y change was -13.8%.

In New Zealand, on the other hand, a slight possibility of a rate cut from 8.25% is seen.  The Reserve Bank of New Zealand announces its decision tonight at 21:00 GMT.  Most analysts think they will hold off this first rate cut until September.  The kiwi hit a 2-week low against the dollar.

At their July 9-10th meeting, policymakers at the Bank of England split 3 ways in a 7-1-1 vote for keeping the bank rate at 5.0%.  Blanchflower wanted a 25-bp cut — no surprise there.  But Tim Besley recommended a 25-bp immediate hike, which shadows news that two Federal Reserve Bank presidents had requested a U.S. discount rate increase.  The Bank of England debated the benefit of a rate hike amid weakening growth (an affirmation of the commitment to price stability) against the negative of such a move that it would fan economic weakness and promote an inflation undershoot in the medium term.  In the end, it was decided that keeping 5.0% in present circumstances made the point that inflation is being carefully watched. 

British home loans sank 66.9% y/y to their lowest level in June since at least September 1997.

Industrial orders in the euro area fell by 3.5% m/m and 4.4% y/y in May.  The street had looked for a 1.3% drop.

French consumer spending in June slid 0.4% m/m and rose just 1.0% from June 2007.  On-year growth in May had been +2.8%.

Malaysia reported CPI inflation of 7.7% in June, a 26-year high. Singapore inflation was similar at 7.5%, a 26-year high as well.

Industrial output in Taiwan fell 2.6% in May.  Export orders there had their lowest growth in 16 months.


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