New Overnight Developments Abroad: Equities Fell in Asia and Europe

August 21, 2008

In Asia, the Japanese Nikkei’s 0.8% drop was eclipsed by stock market declines of 3.5% in China, 2.6% in Hong Kong, 2.8% in Pakistan, 2.0% in Thailand, 1.7% in South Korea, and 1.4% in Taiwan.  Australian equities fell 1.1%.  In Europe stocks are down 1.4% in France, 1.1% in Italy, 0.9% in Germany and 0.7% in Britain.

The dollar fell 1.0% against the yen to below the 109 level but firmed 0.7% against the Australian dollar and 0.3% versus the kiwi.  The U.S. currency has lost 0.4% against the Canadian dollar, 0.3% against the Swiss franc, and 0.2% against both sterling and the euro.

European sovereign bond yields are higher, but the 10-year Japanese bond yield touched a new 4-month low overnight of 1.41%.

Oil prices advanced 1.0% to $116.71 per barrel, while gold climbed 1.1% to $825.40 per ounce.  There is high concern about global growth prospects.

Japan’s customs trade surplus dived 87% y/y in July, but the key headline was a greater-than-forecast 8.1% increase in on-year export growth.  This pace is unlikely to be sustained. Japanese stock and bond transactions generated a tiny Y 18 billion outflow last week.

In New Zealand, the central bank released a regional survey that points to negative growth of about 0.5% in 2Q08, a little greater than the 0.3% drop in 1Q.  If accurate, it would confirm a recession in 1H08.  In any case, the door is open to further cuts in the central bank’s 8.0% cash rate.

Euroland, Germany, and France reported preliminary August PMI data.  The so-called Flash composite index for Euroland as a whole edged up to 48.0 from 47.8 in July but was well below 57.4 in August 2007.  Manufacturing was at 47.5, well under the 50 breakeven line.  Services slid to 48.2, lowest since June 2003.  The composite score was marginally above forecasts, but a sharp drop in Germany’s composite reading from 52.1 in July to 50.3 in August, lowest since July 2003, is especially worrisome.  The German manufacturing index dropped a full point to 49.9, worst in 3 years, and the services index slumped from 53.1 in July to 50.6.  The French composite index edged a tenth lower to 47.0, with a manufacturing index of just 45.1 and a services score also below 50 at 48.5.

British investment contracted 1.9% in 2Q08, over twice as fast as assumed in the preliminary GDP release.

However, U.K. retail sales volume in July unexpectedly rose 0.8% on good demand for clothing and household goods.  The retail sales deflator recorded its largest on-year increase since May 1998.

In Hong Kong, consumer price inflation unexpectedly climbed further to 6.3% in July from 6.1% in June and 1.5% in July 2007.

Mainland GDP growth in Norway was better than assumed in 2Q08 but followed a soft first quarter.

The Swiss ZEW index worsened to -79.6 in August from -76.9, indicating the softest investor confidence there in at least two years.

Wholesale trade in Singapore advanced 25.4% in the year to 2Q08, a shade less than the gain in 1Q.

Australian motor vehicle sales fell 3.4% in July.


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