New Overnight Developments Abroad: Crisis Re-escalates

October 31, 2008

The Nikkei sank 5.0% when the Bank of Japan Policy Board split on the size of its rate and did a move of only 20 basis points to 0.3%.  The Dax is 4.0% lower, and the Ftse (-1.4%) and Paris Cac (-1.7%) are lower as are U.S. stock futures. Asian stocks were mixed, falling 2.5% in Hong Kong and 2.0% in China but jumping by 8.2% in India, 7.1% in Indonesia, 3.1% in Vietnam, 4.6% in the Philippines, and 1.7% in South Korea.

A new wave of risk aversion is reflected in currency movements that saw the dollar fall 1.2% against the yen but rise otherwise by 2.8% against the Australian dollar, 2.0% against the kiwi, 1.5% against sterling, 1.3% versus the euro and Swissy, and 1.1% against the Canadian dollar.

Oil is trading 4.0% lower at $63.31/barrel, and gold prices dropped 1.4% to $727.90 per ounce.

Sovereign bond yields are lower most everywhere. The 10-year JGB slid half a basis point to 1.49% after initially firming to 1.52%.

Among released Japanese data, the manufacturing PMI dropped 2.1 points to an 82-month low of 42.2, the job offers ratio ticked down 0.02 to 50-month low of 0.84, the jobless rate returned to 4.0% from a 2-year high of 4.2%, core consumer prices fell 0.2% m/m in seasonally adjusted terms and edged lower in y/y terms to 2.3%, core-core inflation remained very low at 0.2% y/y, real household spending fell 2.3% in the year to September, housing starts jumped 54.2% in the year to September from a very depressed 09/07 level, and construction orders rose 10.3% in the year to September.

BOJ Governor Shirakawa had to break a 4-4 tie after a meeting lasting 5 hours and 23 minutes. One Board member, presumably the hawkish Mizuno, wanted no rate cut at all. Three wanted to halve the overnight target, which was what markets had been led to expect. The Board compromised on a reduction from 0.5% to 0.3%. By unanimous vote, the Board also reduced its discount rate to 0.5% from 0.75% and voted to pay interest of 0.1% on excess bank reserves held with it.

The BOJ released a new semi-annual Outlook, in which projected growth in fiscal 2008 was cut to 0.1% from earlier forecasts of 1.2% in July and and 1.5% in April. Projected fiscal 2009 growth was reduced to 0.6% from 1.5% predicted in July and 1.7% forecast last April. Projected core CPI (excluding seasonal food but including energy) in the next fiscal year (FY09) was cut sharply to zero from 1.1% predicted last July and 1.0% forecast last April. For FY10, officials expect growth of 1.7%, core CPI inflation of 0.3%, and domestic corporate goods prices to also firm 0.3%.

The flash Euroland CPI inflation rate decelerated to an as-expected 3.2% from 3.6% in September, 3.8% in August and a peak of 4.0% in June and July.

Euroland’s jobless rate of 7.5% in September was the same in August. Such was as expected but up from 7.3% in September 2007. Both Spain and Ireland reported increases of 0.4 percentage points in their jobless rates. Each of those economies has seen the construction sector hammered.

Australian private sector credit rose 0.7% in September and 10.1% y/y. But new home sales fell 1.8% in September.

Talks to merge Chrysler with GM have reportedly stalled.

Switzerland’s leading economic indicator was much weaker than assumed. The September figure was revised down by 0.1 to 0.52, and the October reading fell an additional 0.17 to 0.35.

Italian September producer prices fell by 0.5% m/m, trimming their 12-month pace to 7.3% from 8.4% in August and 8.7% in July.

German real retail sales, a chronically disappointing indicator, had its worst month in September since January 2007. Including the automotive sector, sales dropped 3.1% on month and by 3.8% from September 2007. This is a strong sign that growth was again negative last quarter.

At 12:30 GMT, Canada reports monthly GDP, and the United States reports personal income and spending. North America turns back its clocks at 03:00 local time this Sunday. That will restore a five-hour time spread between New York and London.


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