New Overnight Developments Abroad: European Business Confidence Swooned in September

September 24, 2008

The dollar is softer except against low-interest rate currencies like the yen and Swiss franc.  The U.S. currency slid 0.5% against the Australian dollar, 0.4% versus the kiwi, 0.3% against sterling, 0.2% against the Canadian dollar and 0.1% versus the euro.  It is up 0.5% against the yen and 0.3% against the Swissy.

Equities mostly rose in Asia.  Nikkei closed up 0.2%.  Other increases were bigger like Thailand (2.0%), the Philippines (+1.0%), South Korea (1.0%), and Indonesia (0.6%).  In Europe, the Dax and Ftse are trading 0.2% higher.

Sovereign bond yields are lower in Europe and North America.  The 10-year JGB yield is up half a basis point.

Oil rose 1.5% to $108.25/barrel.  Gold climbed by 1.3% to $892.40/ounce.

The German IFO business climate index for industry slumped to 92.9, lowest since May 2005, from 94.8 in August and 106.0 in August 2007.  The drop was much greater than forecast and prompted IFO officials to recommend an ECB rate cut consideration.  The deterioration last month was concentrated mostly in current conditions and spread across all sectors except construction.  IFO’s service sector climate index firmed to 8.3 from 7.7.

Italy’s business sentiment index also fell more than forecast to 82.7 in September from 83.5 in August.  This was the fourth consecutive monthly drop.

France’s business sentiment declined to 92, lowest since July 2003, instead of remaining steady at 97 as had been forecast.

In Japan, the Finance Ministry’s quarterly business survey showed an unexpected improvement in business sentiment to -10.2 for all large firms from -15.2 in June and to -34.3 from -36.5 for all small firms.  However, planned investment was trimmed, and the level of these readings underscored the fragility of the economy.  The new Prime Minister, Aso, named his cabinet, including Nakagawa at Finance and Yosano at Economics.  PM Aso said the timing of an election will depend on how political opposition responds to a proposed fiscal stimulus as part of a supplementary budget that he wants.

Bernanke will be testifying again today, this time before the House, at 14:30 EDT (18:30 GMT).  The $700 billion proposed bailout hit a lot of opposition yesterday, fueled in part by the continuing scarcity of details surrounding the plan.  It’s hard to get a half-baked package of such size approve, and markets are understandably nervous over whether anything will be legislated in a timely manner.

Euroland’s current account remained in deficit (EUR 1.7 billion) in July on a seasonally adjusted basis and swung into the red by EUR 1.1 billion on an unadjusted basis.  There was a “Basic” deficit (current account plus long-term capital flows) of EUR 20.2 billion versus a surplus in June of EUR 29.9 billion.

Skilled job vacancies in Australia fell 1.8% m/m in September and 13.5% from Sept 2007.

Warren Buffet is investing $5 billion in Goldman Sachs.  The Fed opened up four new swap lines totaling $30 billion (two of $10 billion each with central banks in Australia and Sweden and two of $5 billion with those in Norway and Denmark), lifting the entire swap line network to $277 billion.  The ECB injected $40 bln.  The Bank of England’s tender was under-subscribed, and just $29.9 billion was injected.  The Bank of Japan did $14.2 bln, and the Reserve Bank of Australia added $0.68 billion of dollar liquidity.

Oman’s benchmark weekly repo rate was lifted 79 basis points to 4.28%.

In Britain, the CBI monthly retailer survey produced surprising improvement in September to a reading of -27 from -46 in August.  The expectation had been a score of -46.

Consumer confidence slid in China to 91.0 in September from 92.9 in August.  No economy is seemingly fully insulated from the credit crisis.

The central bank in Norway holds an interest rate meeting today, which will be followed by a press conference.


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