New Developments Abroad: Japanese Real GDP Contracted 2.4% SAAR in 2Q08

August 13, 2008

The dollar is higher except for a 0.2% dip against the yen.  Dollar gains overnight amount to 1.0% against sterling to a 21-month high, 0.6% versus the Australian dollar and Canadian dollar, 0.4% against the Swiss franc, and 0.3% versus the euro.

Equities fell.  Nikkei -2.1%.  Hang Seng index -1.6%.  Australia -2.0%.  India -0.8%.  South Korea -0.9%.  German Dax -0.6%.  British Ftse -0.4%.  Paris Cac -0.9%.

The 10-year JGB yield hit a 4-month low of 1.445% and is off 1 basis point on balance.  Gilt yields up 2 basis points.  Bund yields flat.

Gold rebounded 1.6% to $827.80 per ounce.  Oil firmed 0.5% to $113.54 per barrel.

Japanese GDP in 2Q fell 2.4% at a seasonally adjusted annual rate after a downward revised 3.2% increase in 1Q.  Private consumption, business investment, residential investment, public investment, exports and imports each declined last quarter.  Government consumption edged marginally higher.  The GDP price deflator fell by a bigger 1.6% between 2Q07 and 2Q08.  Japan’s current account slumped 67.4% y/y in June and by 36.5% between May and June.  Merchandise exports fell 1.5% y/y, while imports soared 17.8%.  Both the GDP and current account results were close to consensus expectations.  Japanese stock and bond transactions in July generated a Y 244 billion inflow.

Japan’s Obon holidays continued to restrain market activity.

In Australia, data on wages and consumer confidence exceeded forecasts, dampening speculation about how aggressively and soon the Reserve Bank will begin to ease monetary policy.  Wage gains accelerated in 2Q to +1.2% from +0.9% in 1Q and were up 4.2% from 2Q07 versus +4.1% y/y in 1Q.  Consumer confidence bounced back 9.1% in August, the third greatest monthly improvement in five years.

The Bank of England’s quarterly inflation report revised down its forecast for growth to 0.1% in the year to 1Q09 from 1.0%, increased the projected peak in CPI inflation to 4.8%, indicated that the sharpest bout of economic weakness is ahead, and projected sub-target inflation (that is, less than 2%) within two years.  The report does not clearly point to an imminent rate cut but does create a framework for an easier bias.

A press report out of Germany in the Bild suggests that the drop in German GDP last quarter will lie to the smaller end of analyst expectations.  European GDP figures get released Thursday.

Chinese nominal retail sales posted a 23.2% jump in the year to July, most since 1999 and up from gains of 21.4% in 1H08 and 16.8% in 2007.  Chinese loans grew 14.6% in the year to July, about as expected, while on-year expansion of M2 of 16.4% was down from 17.4% in June and less than forecast.

British unemployment increased 20.1K in July, the largest monthly rise since end-1992.  The jobless rate on a claimant basis rose a tenth to 2.7% and on an ILO basis advanced two-tenths to 5.4%.  Worker earnings growth slowed further in June to 3.4% y/y from 3.8% in May.  These weak labor market figures indicate an absence of cost-push pressure on inflation so far, implying a sooner, rather than later, next rate cut by the Bank of England.

Euroland industrial production was flat in June and down 0.5% from June 2007.  Both monthly and yearly changes were worse than anticipated.

Spanish consumer price inflation hit a 15-year high last month.  South Korean unemployment remained at 3.2% in July.

The Norwegian central bank began a meeting that is expected to keep the bank rate steady at 5.75%.  Announcement will be tomorrow.


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