New Overnight Developments Abroad: Awaiting Approval of Historic $700 Billion Rescue Plan

September 25, 2008

President Bush to meet today with McCain, Obama, and key members of Congress to hammer out a deal.  Most issues said to be resolved.  Bush told nation that  no deal would risk a long and painful recession and says markets currently not working.  Obama and McCain released a joint statement admitting deal is flawed in some respects but urging a compromise to avert “economic catastrophe.”  Bernanke testifies again.  Overnight money rates still very elevated.  Six-month Euribor rate hits record high of 5.296%. The German finance minister, Steinbruck, said the United States has lost its position of superpower in the financial world.  There was a run on a bank in Hong Kong until rumors about it were quashed.  Rumors that the Fed may cut rates also circulated.

BOJ injects $29.6 billion in overnight cash.  Central banks in Hong Kong, Australia, Euroland, U.K., and Switzerland also added liquidity.  There was a rumor that Chinese regulators had told their banks to stop interbank lending to U.S. financial institutions.  The People’s Bank of China let its one-month rates ease. The central bank in Taiwan sliced its benchmark rate by 12.5 basis points to 3.5% in the first easing since 2003.  Austria’s central bank chief, a member also of the ECB Governing Council, said there is no room for the ECB to cut interest rates, as it is solely responsible for price stability.

The dollar is broadly lower, dropping 0.7% against the Swiss franc, 0.6% against the kiwi, 0.5% versus sterling, the Canadian dollar, euro and Australian dollar and 0.2% against the yen.

Asian equities closed mixed with gains in Vietnam of 3.4%, China of 4.0%, the Philippines of 2.2%, and South Korea of 1.2% but losses of 0.9% in Japan, 1.2% in Taiwan, 0.9% in India, 1.4% in Singapore, and 0.7% in Indonesia.  Australian share prices fell 1.1%.  In Europe, the Dax and Paris Cac are trading 1.3% higher, and the Ftse is up 0.6%.

Sovereign bond yields rose in Europe and North America.  The 10-year JGB yield slid half a basis point to 1.475%.

Commodity prices are lower.  Gold edged down 0.1% to $896/ounce.  Oil dropped 1.0% to $104.66/barrel.

Japan posted its first trade deficit in a month other than January since 1982.  The Y 324 billion shortfall in August reflected a 12-month 17.3% advance in imports but just a 0.3% rise in exports, including a drop of 21.8% in shipments to the United States.  Japanese corporate service prices fell 0.4% m/m in August and firmed 1.4% from August 2007 after a 1.3% on-year rise in July.

Australian new home sales fell 1.3% in August.  South African producer prices climbed 0.5% m/m and 19.1% y/y in August.

In Euroland,on-year M3 growth decelerated to 8.8% in August from 9.1% in July and to 9.2% in June-Aug from 9.6% in May-July.  Private lending increased 8.8%, down from 9.4% in July.  Mortgage loans (+4.1%) and corporate loans (+13.6%) also showed slower lending than in the previous month.

German consumer confidence unexpectedly improved to 1.8 from a reading of 1.6 last month, reflecting the drop in energy costs.

Italy posted a EUR 2.07 billion trade surplus in July but a EUR 5.16 billion January-July deficit.


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