New Overnight Developments Abroad: Central Banks in Spotlight

September 11, 2008

The U.S. will be observing the seventh anniversary of the 9/11 attacks.

In continuing fear about the financial system despite nationalization of GSE’s, global stocks fell further.  In Europe, the German Dax, Paris Cac and British Ftse show drops of 1.4%, 1.1% and 1.1%.  Bourses in Asia tumbled more sharply: Nikkei -2.0%, Hong Kong -3.1%, Thailand -1.3%, Indonesia -0.8%, Malaysia -2.0%, th Philippines -1.4%, Vietnam -3.4%, South Korea -1.8%, China -3.3%, and Taiwan -3.2%.

Commodities kept sliding.  Oil lost 0.8% to $101.81/barrel, and gold shed a further 2.2% to $746.0/ounce.  The yield on ten-year JGB’s fell 2.5 bps to 1.48%, but yields firmed slightly in Europe.

A pullback in carry trading sent the yen up 0.7% against the dollar.  Otherwise, the U.S. currency shows gains of 1.4% against the kiwi, 0.5% relative to the euro, 0.4% against the Australian dollar and Canadian dollar, 0.2% against the Swiss franc and 0.1% against sterling.

Four central banks made rate announcements.  The main move was a greater-than-expected 50-basis point cut by the Reserve Bank of New Zealand to a Bank Rate of 7.5%. RBNZ Bollard indicated more cuts lie ahead, the economy is in a shallow recession, but a return to positive growth is likely soon.

Brazil’s central bank rate was lifted for a fourth time since April to counter inflation.

The Bank of Iceland left its rate unchanged at 15.5% after released data showed strong GDP growth of 4.9% saar and 5.0% in the year to 2Q08.  No statement was released.

The Bank of Korea warned that inflation will likely stay elevated and left its Bank Rate unchanged at 5.25%.  Last month saw Korea’s rate raised for the first time in a year.

Bank of England Governor King introduced changes in the money market system including short-term liquidity insurance. He expects housing prices to fall further but could not say by how much.  He said government revenue projections look too optimistic.  The Bank of England’s quarterly measure of expected inflation over the coming twelve months edged up to a new series high of 4.4%.  The central bank’s most dovish policymaker, Blanchflower, said that while CPI inflation may peak at 5.0%, that will happen soon and be followed by a sharp decline.

The ECB monthly bulletin placed top priority on containing second-round wage/price pressures.

Japanese core domestic machinery orders fell 3.9% m/m in July and by 4.7% from July 2007.  Foreign machinery orders tumbled 14.4% m/m and 7.2% y/y, signaling that exports and investment face mounting difficulty.

Japanese stock and bond transactions last week generated a Y 1086 billion outflow, a turnaround from an inflow of Y 1217 billion in the week to August 30.

Australian August labor statistics were surprisingly robust.  The jobless rate fell to a 5-month low of 4.1%.  4.4% was expected.  Jobs climbed by 14.6K, three times more than forecast.

The Kiel economic institute in Germany revised projected GDP growth in 2009 down sharply from 1.0% to 0.2%.

German wholesale prices fell 1.8% m/m in August, led by a drop of 7.4% in energy.  The on-year rise fell to 7.4% from 9.9% in July.

French employment growth in 2Q08 was revised downward to a decline of 0.2% from -0.1% reported initially.

South Korea’s Vice Finance Minister warned of more intervention support for the won.

Spanish CPI inflation decelerated in August to 4.9% y/y from 5.3%.  Sweden’s jobless rate fell to 5.2% in August from 5.8%.


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