New Overnight Developments Abroad: Markets Higher Awaiting U.S. Election Results

November 4, 2008

Stocks rose in Asia and Europe, and an increase is signaled at the U.S. open. Nikkei climbed 6.3%. Stocks advanced 3.7% in Vietnam, 2.8% in India, 1.7% in South Korea, 1.9% in Thailand and 1.3% in Indonesia. Some Asian markets fell, however, like Singapore (-2.9%) and China (-1.6%). In Europe, the Paris Cac, German Dax, and British Ftse are trading higher by 1.8%, 1.5%, and 1.4%. Stocks fell 1.4% in South Africa and by 0.2% in Australia despite a 75-bp rate cut there.

Money market rate fell additionally. Three-month Tibor slid by 10 bps, the biggest daily decline in nine years. Three-month Euribor dropped 3 bps to its lowest level since March 25th.

Oil slid 0.4% to $63.65/barrel, while gold prices firmed 1.0% to $733.80/ounce.

In Tokyo, where trading was closed yesterday, the yield on 10-year JGB’s got as high as 1.535% but are now showing a net gain of 2 bps at 1.51%. Sovereign bond yields are marginally lower in Europe.

The dollar is lower aside from a 0.2% uptick against the yen. Losses amount to 0.9% against the euro and kiwi, 0.7% against the Australian dollar, 0.4%  versus the Swiss franc, 0.2% relative to the Canadian dollar, and a tenth of a percent against sterling.

The Reserve Bank of Australia cut its cash rate to 5.25% from 6.0%. The reduction follows cuts of 100 bps one month ago and 25 bps two months ago. The RBA was expected to implement a 50-bp reduction today. A released statement spoke of “significant weakness in major industrial economies,” cited signs of a slowdown in key developing economies like China, and also predicted a lower terms of trade that will constrain Australian incomes. Officials expect inflation to start falling soon and left the door open for further easing.

New Zealand commodity export prices sagged 7.4%.

There’s a worldwide slump in auto sales. Japanese motor vehicle sales fell 13.1% y/y in October. South African motor vehicle sales slumped 30.1% y/y. U.S. auto sales fell 31.9%.

Euro area producer prices eased 0.2% in September from August, cutting on-year PPI inflation to 7.9% from 8.5%. Non-energy producer prices were unchanged on the month but up 4.1% from September 2007. Euroland’s household savings rate edged higher in 2Q to 13.9%. The U.S. savings rate, by comparison, was just 1.3% as of September, and that was up from 0.8% in August. Historically, such has run at 6-8%.

The British construction PMI index fell from 38.8 in September to 35.1 in October, lowest since at least 1997. RBS Bank  reported a smaller-than-anticipated bad loan writedown.

South Korean reserves fell by $27.4 billion last month, or 11.5%, reflecting intervention support for the floundering won.

Japanese total cash earnings firmed just 0.1% y/y in September, signifying a deep drop in real wages. Summer bonuses (-0.4%) dropped for a second straight year.

A number of analysts are now projecting Chinese growth of less than 8% next year. Some think even 7% may be in jeopardy.

Swiss consumer price inflation (+0.5% from September and 2.6% from October 2007) was somewhat higher than forecast.

Juncker of the EU warned that the next big bursting bubble may involve credit card debt.

While most governments are putting together fiscal stimulus packages, Canadian Finance Minister Flaherty’s priority is to preserve a surplus for a twelfth straight year by cutting spending to offset lower tax revenues.

Key U.S. election questions include 1) does Obama win as polls suggest?, 2) how big are his coattails, especially in terms of whether the Democrats capture a filibuster-proof 60 seats in the senate?, 3) does this election really usher in a more bipartisan style of governance, or was that just campaign talk?, 4) how soon do cabinet appointments get announced? and 5) what do the exit polls suggest about voter priorities and concerns?


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