New Overnight Developments Abroad: Pandemonium

October 8, 2008

It’s been the worst day yet for equities: Japan -9.4%, the worst daily plunge since the 1987 crash.  Indonesia -10.4%. Hong Kong -8.2%. Thailand -6.9%. Taiwan -5.8%. South Korea -5.1%.  The Philippines -4.8%.  india -3.4%.  Vietnam -3.1%.  Australia -5.0%. German Dax -6.0%. Italy -6.0%. British Ftse -4.1%. Paris Cac -5.1%.

Britain unveiled a comprehensive financial market plan, including Gbp 50 bln of new capital for banks from the government and at least Gbp 200 bln from the Bank of England in a special liquidity scheme to free up bank lending.  An emergency cabinet in Italy is reportedly putting together a similar package for its banks.

The Reserve Bank of Australia expanded the range of collateral it will accept and the maturity length of its loans.

Hong Kong’s central bank rate was cut by 100 basis points, but so far no inter-meeting rate announcements have been made by either the Fed or ECB.

The Icelandic crown tumbled 23% to EUR 195.3 one day after officials said they would target such at EUR 131.  The South Korean won also plunged and is off some 15% so far this month on top of a 10% decline in September.

The U.S. dollar shot up 6.8% against the Australian dollar and 5.0% versus the kiwi.

The yen rose 1.4% against the dollar and, more importantly, penetrated the key 100/$ level.  On April 19, 1995, the yen set an all-time high of 79.85, but it had not been below the 100 threshold since September of 1995.  There was heavy currency intervention in 1995 to counter the yen’s strength.

Elsewhere, the dollar is up 0.4% against the Canadian dollar, off 0.1% against the euro and Swissy, and unchanged against sterling. The stability of these relationships contrasts with pandemonium elsewhere in the financial markets.

Oil tumbled another 3.4% to $87.02 per barrel, 41% below its July peak.  Gold jumped 3.5% to $915.80/ounce.

The marginal rate on the ECB’s $70 billion daily auction jumped to 9.5% from 6.75% yesterday, 4.0% on Monday, and 2.5% last Friday.

Euroland confirmed the preliminary estimate of 2Q08 GDP growth as a 0.2% drop from 1Q and a 1.4% rise from 2Q07. Quarterly growth declined in Germany, France, Italy and Ireland, while edging up just 0.1% in the Netherlands and Spain.

Japanese corporate bankruptcies soared 34.5% in September from 09/07, with a 1064% surge in associated debts (largely affected by Lehman’s failure).  The Economy Watchers’ index, a gauge of sentiment among Japanese service sector workers and small firms, fell for a sixth straight month, reaching 28.0 in September after 28.3 in August. 

German industrial production increased 3.4% in August, a much better result than the 0.1% expected dip.  However, as was the case with industrial orders, production in July-August was still lower (-0.5%) than the 2Q average level.

Britain’s NIESR Institute estimates that GDP fell 0.2% in 3Q08.  France’s trade deficit was 9.2% greater in August than July, and its budget gap grew 5.9% in the year to August.

South Korean producer price inflation slowed in September to a 3-month low of 11.3% year-over-year, but that was the fourth consecutive double-digit climb.

The Bank of Japan issued a similar monthly assessment to its September report.  Growth is sluggish, meaning recessionary, and likely to stay so for the time being.

Australian housing finance fell 2.2% in August.  Consumer confidence, which had improved in September following a rate cut, plunged 11% in October.  The Reserve Bank of Australia is likely to follow up this month’s 100-bp rate cut with another of 50 basis points in November.

Britain’s Chancellor of the Exchequer Darling on the eve of the Bank of England’s monthly policy meeting said he wouldn’t interfere with the bank’s independence but reminded monetary officials about their obligation to support government obligations.  A cut of at least 50 basis points seems in the cards.

Thailand’s central bank held a policy meeting and, as expected, retained a 3.75% one-day repo rate target.  There had been rate increases at the prior two meetings, but a cut seems probable at the next one.

Candidates Obama and McCain held their second of three debates, which in surreal fashion barely conceded that any prior objectives would be compromised by the past month’s financial market and real economic developments.  No campaign-changing blows were believed to have landed during their verbal exchange.


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