New Overnight Developments Abroad: Yen Firmer

October 17, 2008

The dollar is down 0.9% against the yen but up 2.3% against the Australian dollar, +1.7% versus the kiwi, +1.2% against the Canadian dollar and +0.5% against the euro.  This pattern suggests more hedge fund liquidations.  The dollar dipped 0.2% against the Swissy but is up 0.1% versus sterling.

The Nikkei bounced 2.8% higher following Thursday’s 11.4% plunge, but other Asian stocks are mostly down: Taiwan -2.3%, Indonesia -4.4%, India -6.3%, Singapore -3.7%, the Philippines -1.1%, Thailand -1.3%, South Korea -3.0% and Malaysia -1.6%.  Stocks in Australia fell 1.1%.  In Europe, an early gain in the Dax has given way to a 0.2% net dip, but the Paris Cac (0.7%) and British Ftse (+1.0%) are higher.  U.S. futures point to a drop of U.S. stocks at the open.

Libor rates are somewhat lower and will post first weekly decline since July.  However, such remain far above “normal” spreads relative to central bank rates.

The yield on 10-year JGB’s is unchanged at 1.585% and down from Tuesday’s high of 1.63%. Sovereign bond yields are marginally lower in Europe.

Gold continues to disappoint investors, who were looking for such to repeat the good performance of the 1930’s.  The yellow metal dipped by a further 0.4% and at $801.50/oz is 22.4% below its March peak and 18.5% weaker than its July high.

Oil firmed 1.4%. At $70.80/barrel, it is up 1.4% and 3.3% above the intra-day low hit yesterday of $68.57.  Opec plans an emergency pow-wow next week.

Japan’s tertiary index, a measure of activity in the service sectors, fell 1.4% in August and 2.3% y/y.  The July-August level was 0.2% below the 2Q mean.  Tokyo officials reportedly are now considering bank recapitalisation like the U.S. and Europe are implementing.

Stock and bond transactions generated a greatly reduced Y 206 bn outflow in the week of October 11th following a Y 1819 bn outflow in the prior week.

Australian export prices soared 13.8% last quarter and 32.9% from 3Q07 on much higher coal prices.  With commodities now falling, prospects are not nearly so bright.  Meanwhile, import prices went up 5% in 3Q and 9.6% from 3Q07.  The terms of trade (export/import price ratio) climbed about 8% last quarter and will mitigate any worsening of economic growth.

Euroland’s seasonally adjusted trade posted a fourth straight deficit in August (EUR 6.1 bn after EUR 6.7 bn in July).  The unadjusted trade balance swung to a deficit of EUR 24.0 bn in January-August from a surplus of EUR 16.5 bn a year earlier.  Soaring energy prices caused imports to jump 11.8% y/y in January-August versus a 6.3% rise in exports.

Germany’s lower house of parliament approved a EUR 500 bn bank rescue plan.  Interbank lending in Europe remains very spotty, and borrowings from the central bank are heavy.  Paramo of the ECB said inflation risks are receding and predicted in-target sub-2% on-year CPI gains by 2H09.

Emerging markets are proving to be less insulated than hoped.  Authorities from South Korea to Argentina scrambled to boost liquidity.  There are signs that even growth in China is now sliding, and speculation is rising that the People’s Bank of China will cut rates further.

Bush and Sarkozy will meet and presumably discuss international monetary reforms.

Italian industrial orders slid 0.3% in August and by 5.2% from August 2007.  Sales slumped 3.0% from July and 11% from August 2007.

U.S. housing starts and building permits will be released at 12:30 GMT. U Michigan consumer sentiment gets reported a little later.


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