New Overnight Developments Abroad: Awaiting U.S. Labor Data and House Vote on TARP Bill

October 3, 2008

The dollar has relinquished part of yesterday’s advance, dropping 0.9% against the kiwi, 0.5% against the Swissy, 0.4% against sterling and the euro and 0.2% against the yen and Canadian dollar.  An exception was a 0.5% rise against the Australian dollar, which had its worst week in over 20 years.

Asian stocks fell mostly.  Japanese Nikkei -1.9%. Hong Kong -2.9%.  South Korea 01.4%.  Thailand -1.3%.  Singapore -2.8%.  The Philippines -1.8%. Australia -1.4%.

The German Dax (0.6%), Paris Cac (+0.2%) and British Ftse (+0.1%) are in the black.

Gold slipped 0.1% to $843.10/ounce after tumbling yesterday.  Oil recovered 0.6% to $94.08/barrel after big drop on Thursday.

The yield on 10-year JGB’s slumped 7 basis points to 1.45%.  Bond yields also fell in Europe.

Money market rates rose sharply in Asia.  Three-month euribor rates climbed to their highest level since late 1994.  Many central banks continued to inject short-term dollar liquidity.  A feeling has developed that the bank bailout plan will not alleviate short-term money market strains.

Australian car sales rose 3.1% in the year to August.  Market expectations lean toward a likely 50-bp Australian rate cut next Tuesday and fully discount a cut of at least 25 basis points.  New Zealand car sales fell 5.7% in the year to September.

Euroland’s composite PMI in September was revised to 46.9 from a preliminary indication of 47.0 and a score of 48.2 in August.  The September reading is the lowest since November 2001.  The services PMI was revised up two-tenths to 48.4, with the lowest price indications since the start of 2006.  The services PMI had been at 48.5 in August and at 54.2 in September 2007.

Among key Ezone members, the service PMI readings in September were 50.2 in Germany (down from 51.4 in August), 50.1 in France (up from 48.0 in August), 49.4 in Italy (versus 48.5 in August), 36.1 in Spain (39.0), and 40.8 in Ireland (39.8).

Real retail sales in Euroland rose 0.3% in August, and July’s reading was revised to 0.1% from a preliminary indication of -0.4%.  Retail sales in July-August were just 0.1% below the 2Q level, suggesting that personal consumption growth will be better in 3Q than it was in 2Q.  Euroland’s retail sales figures and the PMI readings were better than anticipated but still convey a weak and fragile economy.

ECB President Trichet said the House of Representatives must pass the Paulson TARP bill.  The vote is scheduled for this morning.  Before that, the U.S. Labor Department will report September’s labor force survey at 12:30 GMT.  I suspect such will be worse than consensus.

Reserve requirements were eased in Brazil.

In France, INSEE now projects slightly negative GDP growth in both 3Q08 and 4Q08.  President Sarkozy will chair an EU summit tomorrow to discuss the credit market crisis. 

The British PMI-services index fell 3.2 points to 46.0 in September, lowest in at least a dozen years and well below forecasts centering on 48.0.  This was the fifth straight sub-50 reading and points to a recession.  Pressure will be on the Bank of England next week.  Rate cut expectations are rising despite persistent above-target inflation.  Bank of England Governor King promised today to take all needed actions to ensure the banking system has enough liquidity.  The central bank widened the scope of acceptable collateral for its loans.

The Swiss CPI firmed 0.1% m/m and 2.9% y/y in September.  Core CPI of 2.1% was the highest since January 1996. Norway’s PMI-services rose to 40.8 in September from a record low of 39.8 in August.  Spanish industrial output tumbled 7% in the year to August.

In last night’s U.S. VP debate, the pundits are calling Palin the winner.  It was seen as a draw, but expectations about her performance were low going into the event.


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