New Overnight Developments Abroad: Euro Softer Ahead of ECB Press Conference

October 2, 2008

The U.S. Senate as expected approved a sweetened $700 billion TARP bad debt buying bill, which also includes tax cuts, higher FDIC insurance, and some earmarks.  The victory margin was wide at 74-25.  The House of Representatives votes tomorrow amid uncertain prospects for passage.

Money market strains continue amid pessimism that TARP will solve banking problem.  Euribor rates rose to 4.848% on one-week, 5.33% on 3-month and 5.421% on 6-month maturities.  Spreads remain very wide.  EU holding crisis meeting on Saturday, hosted by France.  Juncker said a U.S.-type bailout should not be needed in Europe.  The BOJ injected $15.2 billion of combined 1-week and overnight funding.  The ECB allotted $50 billion, and the Swiss National Bank added $9 billion in overnight dollar funds.

The dollar rose 0.7% against the euro, 0.6% against the Canadian dollar, 0.3% against sterling and the Australian dollar and 0.2% against the kiwi.  The yen is 0.3% higher against the dollar, however.  The won tumbled another 2% to 1211.4 per dollar.

The Nikkei dropped 1.9%.  Elsewhere in Asia, stocks rose 1.1% in Hong Kong, 1.5% in India, 1.3% in Vietnam and 1.7% in the Philippines but fell by 1.1% in Taiwan, 1.4% in South Korea, and 0.7% in Indonesia.  In Europe, the British Ftse, Paris Cac and German Dax are trading up by 1.4%, 1.1%, and 0.8%.

A Y 1.9 trillion 10-year JGB auction drew lukewarm interest, and the yield remained above 1.5% at 1.52%.  Sovereign bond yields are flat in Europe.

Commodities remain in retreat.  Oil fell another 0.6% to $97.92/barrel, and gold dropped 1.7% to $872.20/ounce.

The ECB is universally expected to leave its refinancing rate at 4.25%.  The announcement will be at 11:45 GMT.  But an increasing number of analysts are now expecting a rate reduction by December and look for Trichet to soften tone covering inflation outlook.  Press conference starts at 12:30 GMT.

Japan’s monetary base rose 0.9% in the year to September, the biggest 12-month advance since November 2007.  Stock and bond transactions generated a Y 1.831 trillion outflow in the week to September 27th as the fiscal half drew to a close.

Australia’s trade surplus of A$ 1.364 billion in August was some four times greater than forecast and represented a swing from a A$ 1.840 billion deficit in August 2007.  Exports jumped 6.4% m/m and 32.6% y/y. 

Euroland producer prices fell 0.5% in August due to a 2.5% drop in the energy component.  Non-energy PPI rose only 0.2% m/m but 4.3% from August 2007.

Consumer confidence in Spain sagged to 49.5 in September from 51.4 in August.

British pay deals in June-August produced a median increase of 3.8%, up from 3.5% in May-July contracts.  Bank of England officials will be disappointed at this downward stickiness in wages.  However, the Nationwide house price index in September tumbled 12.4% y/y, the most since at least 1991.  The index fell 1.7% from August.  This price index had climbed 9.0% in the year to September 2007 and 11.1% in the year to June 2007, when it peaked.  Meanwhile, the central bank’s quarterly credit survey confirmed tighter conditions in 3Q08 and intensifying strains that are expected going forward.


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