New Overnight Developments Abroad: High Hopes Surround New Policy Measures

September 19, 2008

The dollar, world stocks, and sovereign bond yields have soared in response to talk of a RTC-like entity to process bad mortgage-related debts and to various other measures introduced by policymakers.

Stocks in emerging markets score biggest gain in at least 21 years. Russia +22%.  China +9.3%.  Vietnam and the Philippines +4.7%.  Malaysia +3.4%.  Taiwan amd Singapore +5.8%.  South Korea +4.6%.  Thailand +4.1%.  India +5.7%. 

Japan’s Nikkei gained 3.8%.  In Europe, stocks are higher by 6.7% in France, 8.3% in Britain, 5.9% in Switzerland, 5.8% in Italy and 4.5% in Germany.

The dollar has appreciated 1.8% against the yen and Swiss franc, 1.3% relative to sterling, and 1.0% against the euro.  The won recouped 1.2%.  The dollar lost 0.7 against the Australian dollar and firmed just 0.2% against the kiew and 0.1% relative to the Canadian dollar.

Sovereign 10-year bond yields in Germany and Britain are more than 10 basis points higher, but the JGB yield dipped 1 bp to 1.48%.

Tight money markets prompted the Bank of Japan and central bank in India to inject $28.7 billion and $12.8 billion into their markets.  Central banks in Australia and Indonesia injected very modest sums.

Russia unveiled a $130 billion emergency state support package for the stock market.  China halted a tax on stock buying and bought shares in 3 state-owned banks.  Britain imposed a 4-month ban on short selling of financial shares.  The U.S. is reportedly considering the same.

Implementation of the swap line expansion plan began.  The ECB, Bank of England, and Swiss National Bank did dollar tenders.  Merger talks between Morgan Stanley and Wachovia are said to have entered a more serious stage.  The Bank of Korea pledged additional cash injections to ease money market strains.

Gold slumped 6.1% to $842.40/barrel, while oil prices rose by a further 1.7% to $99.56/barrel, 9.2% above the close on Wednesday.

Stock and bond transactions last week generated a Y 1244 billion inflow in Japan, reversing a Y 1103 billion outflow in the week to September 6th.

German producer prices fell first time in 2008, dropping 0.6% m/m in August after a 2.0% increase in July.  The 12-month pace of PPI inflation eased to 8.1% from a 27-year high of 8.9% in July.  This swing stemmed from the downturn in oil prices.  Non-energy PPI inflation stood at 3.5%, only a tenth of July’s pace.

Germany’s Finance Ministry said real GDP likely fell for a second straight quarter in 3Q08 and urged wage restraint.

The central bank in New Zealand eased rules on collateral.  New Zealand’s current account deficit widened in 2Q08 to NZ$ 3.91 billion from NZ$ 3.15 billion a year earlier.  The Greek current account shortfall in July was also wider than a year earlier.

A Canadian monetary official said inflation appears contained.


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