New Overnight Developments Abroad: Money Markets Remain Highly Illiquid

September 30, 2008

The U.S. Congress will not gather again until Thursday.  Chinese markets are closed all week.

The Nikkei slumped 4.1%.  Elsewhere in Asia, stocks fell 4.7% in Vietnam, 3.6% in Taiwan and 1.5% in the Philippines but rose 2.0% in India and 0.8% in Hong Kong. In Europe, the Dax has lost 0.8%, but the Cac40 (0.3%) and Ftse (0.2%) are trading fractionally higher.

The dollar has recovered 1.1% against the yen and 1.0% versus the Swiss franc, amid feelings that a TARP bill will eventually get passed by Congress.  The dollar slid 0.9% against the kiwi and 0.6% against the Australian dollar but is up 0.5% against the euro, 0.2% against the C-dollar, and 0.1% versus sterling. The South Korean won experienced its greatest monthly decline in 11 years.

Sovereign bond yields are up in North America and Europe, but the 10-year JGB yield slid 1 basis point to 1.48%.

Oil recovered 1.0% to $97.37/barrel.  Gold firmed 0.8% to $901.30 per ounce.

Japan released a slew of data.  The jobless rate in August of 4.2%, 4.0% on-year drop of real household spending, 44.3 reading on the PMI-mfg index, and 3.5% decline in industrial production were weaker than forecast.  Further details can be found in my previous blog entry.  In addition, construction orders dipped 0.3% y/y, also worse than expected, but housing starts jumped 53.6% y/y on a favorable base effect.

British consumer confidence improved unexpectedly to a still-depressed -32 reading in September from -36 in August and -39 in July.  The U.K. current account deficit doubled in 2Q08 from 1Q to Gbp 10.987 billion, equal to 3.0% of GDP.  The gap was slightly bigger than forecast. Real GDP was unchanged in 2Q and up just 1.5% from 2Q07.  Consumption and overall domestic demand eased 0.1%.  The savings rate in 1H08 amounted to just 0.2%.  Negative growth appears likely in the second half of 2008.

The flash consumer price report for Euroland showed an as-expected drop in on-year inflation to 3.6% in September from 3.8% in August.

Italy reported a lower-than-forecast 0.3% rise in harmonized consumer prices, cutting the 12-month increase to 3.7% from 4.2%.  But Italian producer prices dipped only 0.2% m/m in August, less than anticipated, and went up 8.2% y/y.

French producer prices dropped 0.5% m/m in August, more than assumed and the greatest monthly decline in 25 months.  Energy fell 3.1% m/m.  The Dexia Bank had to be helped by a EUR 6.4 billion capital injection from the governments of France, Belgium and Luxembourg.

Norwegian credit expanded 12.5% in the year to August.  Retail sales rose 0.6% m/m and 2.7% y/y last month, a bit more than expected.

German unemployment fell 29 thousand, twice as much as expected, in September and to 7.6% of the labor force, lowest since mid-1992.  Jobs rose 1.4% in the year to August.

Business sentiment in New Zealand improved sharply to +2 in September following the 50-bp rate cut from -20.5 in August.  Another cut of 25-50 basis points is expected on October 23rd.

Central banks added overnight liquidity in Australia, Euroland, Norway Japan and Switzerland.  The ECB allotted $30 billion, satisfying fewer than half the amount bid and at a sky-high rate of 11.0%.  Three-month and six-month Euribor rates climbed additionally to $5.277% and 5.377%. Overnight Libor rates recorded that largest daily increase, a jump of 430 basis points to 6.87%.

Private credit in Australia rose 0.5% in August but recorded a slower 12-month increase of 10.5%.  Australian retail sales grew 0.6% m/m and 3.7% y/y in August, faster than assumed.  Australian building approvals sank 3.7% in August and 8.6% from August 2007.  Those results were worse than projected.


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