New Overnight Developments Abroad: Dollar Ending Week on Firm Note

August 22, 2008

The dollar has recorded overnight gains of 1.2% against the kiwi, 1.0% against sterling, 0.9% against the Australian dollar, 0.8% against the yen, 0.6% relative to the Swiss franc, 0.5% against the euro and 0.3% against the Canadian dollar.

Oil (down 0.4% to $120.72/barrel) and gold (-0.3% to $836.60 per ounce) came off yesterday’s highs.

In Asia, the Nikkei lost 0.7%. Stocks also fell in Hong Kong by 2.6%, China by 1.6%, and South Korea by 1.0%, but such rose 1.5% in Indonesia and 1.1% in India. In Europe, the German Dax and Paris Cac are each trading 0.7% higher, and the British Ftse has risen 1.0% despite bad GDP data.

The yield on 10-year JGB’s rose 4 basis points to 1.45%.

British real growth in 2Q08 was revised down more sharply than anticipated to no change.  The last quarter not to show any economic growth was 2Q92.  Year-over-year growth slowed to 1.4% from 2.3% in 1Q08.  The sectoral breakdown of growth last quarter was -0.8% in production, -1.1% in construction and +0.2% in services.  Only an unsustainable big unwanted jump in inventories and a large 1.4% plunge in imports kept growth from going into the red.  Domestic demand has already contracted for two consecutive quarters.  Bottom line: a recession is unavoidable.

Malaysian consumer price inflation accelerated to 8.5% y/y in July, most since December 1981, setting the stage for a likely rate hike next week.

Euroland’s seasonally adjusted current account deficit widened 49% m/m to EUR 8.2 billion in June.  There was EUR 25.0 billion deficit in 1H08 after surpluses of EUR 5.4 billion in 2H07 and EUR 20.4 billion in the twelve months to June 2007.  In June 2008, however, net portfolio capital inflows jumped to EUR 54.2 billion.

Industrial orders in Euroland slid 0.3% in June on top of May’s 5.4% plunge, resulting in the largest on-year decline (7.4%) since December 2001.  Orders for transportation equipment collapsed 29.8% between June 2007 and June 2008. In that statement year, orders fell by 16.9% in France, 6.5% in Spain, and 6.0% in Germany.  German Chancellor Merkel nonetheless continues to resist political calls for a fiscal stimulus.

Minutes from the Bank of Japan’s policy meeting in July observed that global economic weakness is weighing on Japanese exports and found no signs of second-order pressures on wages and prices caused by higher energy and selected food prices.  Investment plans among smaller firms are weak.

The Fed’s annual symposium in Jackson Hole kicked off without Bernanke commenting on the U.S. economic outlook.  Bush declared an emergency in Florida, where tropical storm Fay has dumped up to 2-1/2 feet of rain.

GDP in Taiwan rose 4.3% in the year to 2Q08.  The jobless rate there edged up a tenth in July to 4.1%.


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