New Developments Abroad: Dollar Back in Forward Gear

August 20, 2008

After a brief correction Tuesday, the dollar has risen 0.7% against the Swiss franc, 0.6% versus sterling, 0.5% relative to the euro and 0.3% against the yen, Canadian dollar, Australian dollar and kiwi.  One exception to this advance has been the yuan.  China’s currency recorded its best gain in 3 weeks after U.S. Treasury Secretary Paulson reiterated his call for its faster appreciation.

Chinese equities rocketed higher.  The CSI 300 leaped 7.9% on talk the government will soon take steps to safeguard growth.

Elsewhere in Asia, the Nikkei dipped 0.1%, but stocks in Hong Kong (2.2%), indonesia (1.3%), Taiwan (0.9%) and India (also 0.9%) rose.  Shares in Vietnam fell 3.1%, however, in response to a central bank rate hike of 420 basis points to 15.0%.

Sovereign bond yields are marginally mixed.  The 10-year JGB yield initially spiked up to 1.475% but closed unchanged at 1.435%.  The auction of Y 1.9 trillion of 5-year JGB’s went fine.

Oil is flat at $114.47 per barrel.  Hurricane Fay is steering clear of oil installations in the Gulf.  Gold backed down 0.5% to $812.80/ounce.

A 0.9% drop in Japan’s all-industry index in June matched expectations.  Such fell 1.2% in the year to June.

Australian skilled job vacancies fell 4.3% m/m and 14.4% y/y in August, adding to perceptions of a sharp economic slowdown ahead.

Britain’s public finances were a little better than assumed in July.  Public sector net borrowings nonetheless amounted to Gbp 19.1 billion in April-July, 128% greater than in the first four months of last fiscal year. On-year M4 growth slowed 2/10ths to 11.2% in July.  CML gross mortgage lending rose 5% m/m in July but was 27% lower than in July 2007.  For a second straight monthly meeting, the Bank of England Monetary Policy Committee split 7-1-1 on its interest rate call, according to minutes of the meeting on August 6-7.  A somewhat more dovish document had been anticipated.  Nobody joined Blanchflower’s call for an immediate rate cut, but wide agreement over worsening growth prospects still points to the next move being toward a lower rate level.  It’s now 5.0%.

Staying with Britain, the CBI monthly industrial trends survey showed a drop in orders to an index value in August of -13 from -8 in July and +1 in June.  Output expectations of -13 were their lowest reading since end-2001.  Domestic inflation expectations eased slightly but stayed high with a score of +31.

Chinese corporate goods input prices rose 9.4% y/y in July, down from 9.5% in June and a recent peak of 10.3% in April but above 6.5% y/y last October.  Oil and food posted respective rises in the year to July of 27.3% and 6.6%.

More detail emerged on the Bank of Japan’s August economic assessment.  In addition to an overall weaker view for a second consecutive month, officials downgraded their assessments of exports, consumption, and industrial production.

Officials in the Philippines lowered their growth forecast for 2008.


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