New Overnight Developments Abroad: Commodities Plunge and Japanese Prime Minister Resigns

September 2, 2008

Oil prices sank as far as $105.46/barrel, lowest since April 4, and are off 7.0% on balance at $107.41.  Gold dropped 3.3% to $807.40 per ounce.

Prime Minister Fukuda resigned unexpectedly, faced with gridlock in parliament.  Taro Aso is considered the leading contender to become the 11th prime minister in 15 years.  Elections are possible.  Aso holds more extreme views than Fukuda, is age 67, and is considered more likely to compromise fiscal discipline.  The yen is 0.6% weaker against the dollar.  The yield on 10-year JGB’s fell 2.5 basis points to 1.45%.  The Nikkei plunged 1.8%.

The U.S. dollar has soared 2.1% against the Australian dollar, helped by an as-expected cut in Australia’s cash rate, and has gained 1.5% relative to New Zealand’s kiwi.  The U.S. currency is also up 1.2% against sterling after hitting a 2-1/2 year high of 1.7784.  The dollar has risen 0.8% against the euro and Swiss franc and by 0.4% versus the Canadian dollar. 

The Dax is 1.4% higher.  The Paris Cac has gained 1.1%.  The Ftse is up just 0.3%.  Stocks are mixed in Asia.  China -1.0%.  India +3.8%.  Hong Kong +0.7%.

The Reserve Bank of Australia’s 25-basis point rate cut was the first reduction since 2001, a year that saw six cuts totaling 200 basis points.  The statement said that further moves toward a less restrictive monetary policy will depend on future price and demand data.  Investors had hoped to get a clearer pre-announcement of additional near-term rate cuts but continue to price in at least one more rate cut this year and another 75 basis points by September 2009.  The Aussie dollar fell to its lowest level in 12 months.

In other Australian news, new housing approvals fell 5.3% in the year to July, but government spending increased 1.4% in 2Q08.

Japan’s monetary base slid 0.2% in the year to August, slightly less than expected.

Producer prices in Euroland increased 1.1% in July, lifting their 12-month rate of rise to 9.0% from 8.0% in the year to June.  Energy prices jumped by 2.8% m/m and 24.5% y/y.  All other prices collectively went up 0.5% m/m and 4.3% y/y.

The OECD revised its 2008 growth forecasts.  A projected 1.4% expansion in the G7 in 2008 is the same as the forecast released three months ago but masks big compositional changes: U.S. revised up to 1.8% from 1.2%; Euroland revised down to 1.3% from 1.7%; Japan revised down to 1.2% from 1.7%, Great Britain revised down to 1.2% from 1.8%; and Canada revised down to 0.8% from 1.2%.

Bank of Japan Governor Shirakawa sees a likely global slowdown even affecting Asian NIEs and Asean economies.  He reiterated his warning against excessive monetary accommodation in Japan being kept too long but said weakening wage data indicate a lack of second-order inflation effects so far.

The British construction PMI rose to 40.5 in August from a data series-low of 36.7 in July.  The government unveiled a Gbp 1 billion housing market stimulus package, including a one-year exemption from the home purchase tax for houses costing less than Gbp 175K.

South African motor vehicle sales plunged 30.3% in the year to August, the greatest drop since the year to September 1994.

Swiss real GDP growth of 0.4% in 2Q08 was greater than forecast, and Swiss CPI inflation of 2.9% y/y in August versus 3.1% in July was lower than assumed.

Spanish unemployment climbed to a 10-year high in August, increasing 103K on month and 502K on year.


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