New Overnight Developments Abroad: German Recession Confirmed Officially

November 13, 2008

Asian Stocks got bombed again, with drops of 5.3% in Japan’s Nikkei, 5.2% in Hong Kong, 5.0% in Indonesia, 3.1% in India, and 1.6% in Singapore.

In Europe, the Ftse is 1.7% lower, and the Dax (-1.1%) and Cac40 (-0.9%) fell too. Australian shares plunged 5.9%, and the Aussie dollar needed intervention support after falling to USD 0.6347. Sterling remained under $1.50 and got as weak as $1.4807.

The dollar rose 0.7% against the yen, 0.4% versus the New Zealand dollar and 0.3% against both sterling and the Swiss franc. The dollar lost 0.5% net against the Aussie dollar, which received intervention support, and 0.1% against both the Canadian dollar and the euro.

Sovereign bond yields are lower in Japan, Germany, and Britain but higher in Switzerland.

Gold fell 0.8% to $712.40. Oil lost 0.5% to $55.90/barrel.

New forecasts from the OECD project negative 2009 growth in the United States, Japan, Europland, and the OECD as a whole. Simultaneous positive growth in all of these economies is not expected until 4Q09, and CPI inflation in 2010 for each is predicted to be no higher than 1.5%.

According to an ECB survey of forecasters, CPI inflation will be within target, that is 1.9%, by 2Q09. Another rate cut in December may be accompanied by a shift in identified price risks to “balanced” from “biased to the upside.”

Italian consumer prices firmed 0.5% last month but fell in on-year terms to 3.6% from 3.9%. French consumer prices dipped 0.1% in October and eased to 2.7% on a year-over-year basis. France’s current account deficit narrowed marginally to EUR 4.0 bn in September from EUR 4.2 bn in August.

Japanese corporate goods prices, a proxy for wholesale price inflation, slumped 1.6% m/m in October, cutting the 12-month increase by 2 percentage points to 4.8%. Oil prices plunged 12.4% y/y. Consistent with the strength of the yen, Japanese stock and bond transactions generated a Y 1839 bn inflow in the first week of November following a Y 2282 bn net inflow in the final week of October.

Chinese industrial production slowed sharply to a 12-month advance of 8.2% from 15.2% in January-September. Reportedly, this development spurred officials to announce a $586 bn massive fiscal stimulus package earlier this week.

German real GDP fell 0.5% in 3Q08 or 2.1% at a seasonally adjusted annual rate. The 1.9% annualized pace of decline between 1Q and 3Q was the greatest two-quarter decline in a dozen years and confirms that Europe’s largest economy is experiencing a sharp recession. The fourth quarter of 2008 will show even weaker momentum. On-year growth in 3Q adjusted for seasonal and working day variations was only 0.8%, down from 1.9% in 2Q and 2.7% in 1Q08. This was a preliminary estimate. Details of the components of demand will be released on November 25th.

Japanese industrial output rose 1.1% in September according to revised figures and by just 0.2% from September 2007. Output fell 1.3% in 3Q, the third consecutive negative quarter. Capacity usage and capacity rose 1.6% and was unchanged, respectively, in the latest month.

At 13:30 GMT, the U.S. will release trade figures and new jobless claims. Canadian trade numbers are also due then. Markets were uninspired by yesterday’s remarks from Treasury Secretary Paulson. An impasse continues between the Bush and Obama camps over the proposal for government to help out U.S. automakers. The G-20 meeting this weekend in Washington is attracting considerable attention.


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