New Overnight Developments Abroad: Germany Moves Closer to Recession

August 26, 2008

The dollar advanced another 1.5% against the Australian dollar, 1.1% against the euro, 1.0% against the Swiss franc and sterling, 0.6% against the kiwi, 0.4% relative to the yen and 0.3% against the Canadian dollar.  EUR/USD touches lowest level since mid-February.  GBP/USD is lowest since July 2006.  There was more unwinding of carry trades.

Most Asian bourses fell.  China -2.9%. Thailand -1.4%.  Singapore -1.0%.  Indonesia -0.9%.  Japan -0.8%.  Philippines -0.6%.

The Ftse reopened after yesterday’s bank holiday with a 1.9% plunge.  German Dax is trading off 0.2%.  Paris Cac -0.8%.

Sovereign bond yields are lower.  10-year JGB off 1 basis point at 1.415% and just above its 4-month low.

Gold slumped 1.2% to $815.50/ounce, while oil has lost 0.6% to $113.40 per barrel.

German 2Q GDP growth was confirmed at negative 0.5%.  Consumption fell 0.7%.  Construction plunged 3.5%.  Imports slumped 1.3%.  Exports -0.2%.  On-year growth adjusted for variations in the number of working days slowed to 1.7% in 2Q from 2.6% in 1Q08.

The German business climate for trade and industry, according to the IFO Institute index, worsened much more than expected in August.  The overall index fell 2.7 points to 94.8, worst since June 2005 with declines of 2.4 points in the current situation and 2.9 points in the 6-month expectation component.  The IFO index was nine points higher in May at 103.4.  Only wholesaling brightened in the latest month.  IFO officials detect a growing likelihood of an ECB rate cut.

German consumer sentiment also weakened more than assumed, falling in September to 1.5 from a downward revised 1.9 print in August and 7.3 in September 2007.  Consumers have not been this gloomy since mid-2003.

Expected inflation in New Zealand climbed 0.3 percentage points to a 17-year high this quarter according to a central bank survey, but this deterioration is not seen aborting a likely cut of New Zealand’s cash rate to 7.75% when policymakers meet on September 11th.

Japanese corporate service prices dipped 0.1% in July, holding their 12-month increase at 1.3%.

British Banking Association figures show a 65% on-year plunge in mortgage approvals in July and core net mortgage lending remaining very weak at Gbp 4.3 billion.  A CBI survey of British service sector profits revealed a sharp drop this quarter to a 6-1/2 year low.

A German budget surplus equal to 0.5% of GDP in the first half of 2008 creates some leeway for tax cuts.

French housing starts in May-July fell 11.8% year-over-year.

Swedish producer prices rose 0.7% m/m and 3.3% in the year to July.

South Korean intervention support for the won has been greatly lessened, allowing such to fall through its July 4th low of 1050.4/$ to 1087.4 today.


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