New Overnight Developments Abroad: Asian and European Stocks Soared, U.S. Dollar Is Lower

October 14, 2008

Bush and Trichet speak at 12:00 GMT. Paulson to explain details of U.S. plan at 12:30 GMT.  Washington will reportedly inject $125 billion combined into Citigroup, Goldman Sachs, Wells Fargo, JP Morgan, Bank of America, Merrill, Morgan Stanley, State Street and Bank of New York and disperse another $125 billion of capital around to other banks.  The U.S. initiative follows a $1.8 trillion capitalization and bank loan guarantee scheme revealed earlier by key European governments.

The dollar has declined 3.7% against the Australian dollar, 2.5% against the kiwi, 1.5% against sterling, 1.3% against the euro, 0.8% against the Canadian dollar, and 0.7% against the Swiss franc.  The dollar is up 0.5% against the yen, however.

The Nikkei, which was closed Monday, soared 14.2%.  Elsewhere in Asia, stocks are up 5.4% in Taiwan, 6.1% in South Korea, 5.1% in Thailand, 6.4% in Indonesia, 7.3% in the Philippines, 4.8% in Vietnam, 1.6% in Malaysia, and 1.5% in India.  In Europe, stocks are up by 5.3% in Britain, 5.1% in France, and 4.7% in Germany.

The yield on 10-year JGB’s rose 5.5 basis points to 1.575%.  Oil prices recovered 3.3% to $83.87/barrel.  Gold rose $854.10/ounce.

Japanese corporate goods prices slid 0.4% in September, cutting their 12-month advance to 6.8% from 7.2% in August and a 27-year high of 7.3% in July.  The Bank of Japan Policy Board will convene an emergency unscheduled session at 11:30 GMT and will hold a news conference at 13:00 GMT, presumably to explain steps to widen the range of acceptable collateral.  A rate cut is not expected to be announced.

Iceland’s stock market reopened and plunged 76%.

In Australia, business conditions improved 2 points to -1 in September, while business sentiment slid another point to -8.  Australia’s government unveiled a $7.3 billion fiscal stimulus.

Canadians vote today on the 308 seats in parliament.  The Conservatives led by Stephen Harper are expected to retain power but to fall again short of a majority.  If so, it will create Canada’s third minority government in four years and point to a further legislative stalemate.

Chinese foreign exchange reserves rose $21.4 billion in September and $96.8 billion in 3Q08 versus a rise of $280.6 billion in 1H08.  Chinese M2 growth slowed to 15.3% y/y in September from a 12-month increase of 16.0% in August and 18.5% in October 2007.  Yuan lending growth accelerated unexpectedly to 14.5% year-on-year from 14.3% in August.

South Korean import prices rose 2.3% m/m and 42.6% y/y in September, reflecting won depreciation in large part.

Euroland industrial production advanced 1.1% m/m in August and posted a smaller 0.7% 12-month decline.  A 3.3% increase in German output provided the main boost.  Ezone production in July-August was still 0.3% lower than the 2Q level.

German investor sentiment, according to the ZEW expectations index, slumped from -41.1 in September to -63.0 in October.  The drop was twice as much as anticipated.  Current conditions worsened sharply as well from -1.0 in Setpember to -35.9 in October, lowest since end-2005.  The Six German Economic Institutes released a forecast calling for growth of 1.8% this year but only 0.2% in 2009.

In Britain, consumer price inflation of 5.2% in September exceeded a predicted 12-month advance of 5.0%.  5.2% is the highest inflation rate since March 1992 and included an acceleration of core inflation to 2.2% from 2.0% in August.  Utility fees for electricity and other household services jumped 15.0% y/y, up from 10.1% in the year to August.  The RICs house balance index worsened to -84.2 in September from -81.8 in August, and the BRC reported an on-year 1.0% rise of total retail sales, somewhat less than street forecasts.

The Bank of France index of business sentiment slumped to 87 in September from 94 in August, and the central bank revised its forecast growth rate for 3Q08 into negative territory to -0.1%, implying a technical recession. 


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