New Overnight Developments Abroad: Largest U.S. S&L Failure Ever

September 26, 2008

Washington Mutual was closed by the government.  JP Morgan bought its deposits and branches.  Action followed stalled talks over Paulson’s Troubled Asset Relief Program.  House Republicans balked and offered a different mortgage insurance plan.  Democrats accused McCain of promoting this action. 

Stocks mostly fell in Asia and U.S. equities are indicated to open much lower.  Nikkei -0.9%.  Hang Seng -1.3%.  Stocks fell 3.2% in India, 1.3% each in Indonesia and Singapore, 2.2% in Taiwan, and 1.6% in South Korea.  In Europe, the German Dax (-1.8%), Paris Cac (-1.7%) and British Ftse (-1.6%) show big losses.

Sovereign bond yields are sharply lower in Japan (-3.5 bps to 1.445%), Europe, and North America.

Oil fell 2.9% to $104.94/barrel.  Gold is 0.9% lower at $876.40 per ounce.

Central banks continued to inject considerable liquidity.  U.S. weekly figures last night revealed $188 billion per day borrowings by banks and others. ECB, Swiss National Bank, Bank of England, Reserve Bank of Australia all added funds, some overnight and other to help markets through quarter-end.  Fed swap lines were expanded still further by $10 bln in the case of the ECB and $3 billion in the case of Swiss National Bank.  Total swap network now at $290 billion.

Rumors sent shares of the insurers Fortis and Pug Am sharply lower.  GE issued profits warning.  Three-month Libor rates climbed further.

Japanese consumer prices in August firmed 0.3% m/m and 2.1% y/y, with core (ex-seasonal food) holding at 10-year high of 2.4% y/y as expected.  CPI excluding both food and energy firmed just 0.1% and had no change from August 2007.  Tokyo core consumer price inflation unexpectedly rose to 1.7% y/y in September from 1.5%, and non-food and non-energy index reached a 10-year high of 0.5%, up from 0.2%.  Tokyo data point to higher national inflation in next month’s release.

German state CPI reports hovering around no change in September from August but reduced on-year change.  Food costs lower but energy surprisingly higher.  German import prices slid 0.8% m/m in August and held at a 12-month rate of 9.3% compared to -0.6% in the year to August 2007.  Non-oil import price inflation climbed to 4.1% y/y from 3.5% in July.

The French 2009 budget was unveiled, with unchanged projected 2.7% ratio for the deficit as a percent of GDP.  Out-years no longer show disappearance of deficit by 2012.  Debt-to-GDP climbs to 66% next year.  Growth projected optimistically at 1-1.5% in 2009 after 1.0% in 2008.  President Sarkozy called the crisis one “without precedent.”

French GDP confirmed to have fallen by 0.3% in 2Q08 after rising 0.4% in 1Q.  Consumer confidence improved to -44 in September from -47 in July (no reading is taken in the vacation month of August). Street analysts had expected further deterioration, but lower energy costs gave households a slight lift in mood.

The ECB’s Papademos made some hawkish comments, suggesting that weaker growth is likely to curb inflation less than hoped.

New Zealand chalked up its second consecutive quarter of negative growth, but the 0.2% dip in 2Q was less than forecast. 

China’s yuan posted its greatest daily decline since before the July 2005 revaluation.  Officials are sensitive to potential of exports to soften.

Australia’s finance ministry will buy A$ 4 billion of mortgage-backed securities.

Italian wages rose 4.2% in the year to August, down from 4.3% y/y in July but above June’s 3.6% pace.

Polish GDP grew 5.8% y/y in 2Q, down from 6.1% in the year to 1Q08.


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