New Overnight Developments Abroad: Spotlight on Weak Europe Sends Dollar Higher

September 3, 2008

The dollar climbed 1.5% against the kiwi, 1.2% against the Australian dollar, 0.9% against the Canadian dollar, 0.8% against the Swiss franc, 0.7% against the euro, 0.6% against sterling but only 0.1% against the yen.  The Nikkei rose 0.9%, but the Dax is 0.9% lower.  The Ftse edged up 0.3%.

Who’s afraid of a storm or two in the Gulf of Mexico?  Oil fell another 1.4%, and gold dropped 1.2%.  Commodity currencies following suit.

The yield on 10-year JGB’s eased 1.5 basis points to 1.455%.  Gilt yields lower.

Second-quarter GDP in Euroland fell 0.2%.  Investment fell 1.2%.  Consumption (-0.2%) and exports (-0.4%) also declined.  On-year growth slid to 1.4% from 2.1%.

Euroland’s service-sector PMI in August was revised to 48.5 from a flash indication of 48.2 and after 48.3 in July.  That’s a small bounce in the face of big drops in the euro and oil prices.  The German PMI-services was revised up 0.8 points to 51.4, but France (49.2), Italy (48.5), Spain (39.0) and Ireland (39.8) all had sub-50 scores, signaling contracting activity.  Euroland’s composite PMI was at 48.2 in August versus 47.8 in July and 57.4 in August 2007.

Australian GDP rose 0.3% in 2Q08, marginally less than forecast, and by 2.7% from 2Q08, down from a year-on-year advance of 3.3% in 1Q08 and 4.3% in 4Q07.  Motor vehicle sales in Australia dived 12.3% in the year to August.

Malaysian GDP rose less in the year to 2Q (6.3%) than in the year to 1Q08 (7.1%).

Italian business sentiment remained at 83.5 in August, lowest since October 2001, implying a likely contraction of GDP in 3Q.  In the second quarter, GDP fell 0.3% in both Italy and France and by 0.5% in Germany.

Euroland retail sales volume fell 0.4% in July, the fifth drop in six months.  There was a 2.8% decline from July 2007.

The South Korean won was supported by intervention after hitting a four-year low of 1158.7 per dollar.

The British PMI-services rebounded to 49.2 in August from 47.4 in July but remained under 50 for a fourth straight month.  Shop prices advanced 3.8% in the year to August, up from a 12-month gain of 3.2% in July.  The nationwide measure of British consumer sentiment stabilized at 52 in August after posting seven consecutive declines.

Spanish consumer confidence bounced to 51.4 in August from 46.3 in July.

The Bank of Canada is expected to hold its key interest rate target at 3.0%.  The announcement is due at 13:00 GMT.  A slight risk of a cut exists.  U.S. factory orders and motor vehicle sales data arrive today.


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