New Overnight Developments Abroad: Tough Day for Emerging Markets

November 11, 2008

Stocks tumbled anew, especially in emerging markets. The Turkish lira fell 2.5%. The Russian rouble posted biggest drop in a month as officials conserve reserves, which had dropped some $100 bn since August. The Nikkei dropped 3.0%. In other Asian markets, stocks fell 4.1% in Singapore, 3.9% in Vietnam, 3.1% in Thailand, 4.8% in Hong Kong, and 2.2% in South Korea and Taiwan. Australian shares fell 3.6%. In Europe, the German Dax, Paris Cac and British Ftse are trading lower by 1.7%, 2.2%, and 1.6%.

Hong Kong authorities did more intervention to cap HK$ strength.

The dollar rose 0.9% against the Australian dollar and 0.5% versus sterling but is otherwise narrowly mixed, with gains of 0.2% against the euro and 0.1% against the yen but losses of 0.1% against the Canadian dollar and Swiss franc. The kiwi is unchanged.

Euribor rates continued to move lower. Money market rates are still not back to normal, and extensive real-sector damage has occurred in the meantime.

Sovereign bond yields rose in Europe, but the yield on ten-year JGB’s fell 4 basis points to 1.485%. Japan’s 5-year auction elicited strong demand.

Oil prices fell back 3.4% to $60.28 per barrel. Gold prices eased 0.9% to $739.60 per ounce.

Japan reported a 48.8% on-year drop in its current account surplus to Y 1498 bn in September. Merchandise exports plunged 9.9% in October 1-20 from a year earlier. The economy-watchers’ index, a gauge of retail activity, plunged to a record low in October of 22.6, breaking the old low of 27.1 in Oct 2001, from 28.0 in September. The outlook component dropped to a reading of 25.2 from 32.1 in September. All of these results were weaker than anticipated.

The ZEW expectations index of investor sentiment in Germany improved to -53.5 in November from -63.0, but the current conditions index worsened to -50.4 from -35.9. The ZEW expectations index remained much weaker than the long-term average reading of +27.1. The ZEW expectations index for Euroland mirrored movements in the German index.

Australia’s business sentiment index hit a record low in October of -29, sharply worse than -8 in September. Business conditions dropped ten points to -11.

British same-store sales fell 2.2% y/y in October according to the British Retail Consortium, worst in 41 months. The RICs house price index was a little better in October at a still-depressed reading of -81.8. A separate government measure of house prices dropped 5.1% in the year to September. The goods and services U.K. trade deficit narrowed 12.8% m/m in September to Gbp 3.863 billion. The merchandise trade shortfall was at Gbp 7.482 billion after Gbp 8.026 bn in August, as imports grew 0.3% and exports rose 2.9%.

German wholesale price inflation decelerated to 3.6% y/y in October from 5.8% in September and a peak of 9.9% in July. The 3.6% reading was the lowest in over a year.

Chinese consumer price inflation slowed in October to 4.0%, less than half the peak of 8.7% last February and down from 4.6% in in September. Food costs have receded to a year-over-year rate of 8.5% from 23.3% last February. Non-food consumer prices rose 1.6% y/y, down from 2.0% but the same rate as last February.

China also posted a record $35.2 billion trade surplus in October, shattering the prior high of $29.3 bn in September. Exports rose 19.2% y/y. The trade surplus for the year to October amounted to $265 bn, up from $248.7 bn in the year to July.

Asian banks hold $4.246 billion of reserves, 55% of which is not owned by China. Within that total, however, there have been some large declines so far this year such as the drops of 23% in South Korea and 11% in Indonesia. Chinese reserves have climbed about 25% since end-2007.

The U.S. Treasury market will be shut for Veterans Day today. commemorating the 90th anniversary of the end of World War I.


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