New Overnight Developments Abroad: 3Q Growth Negative in Euroland, Germany, Italy and Spain

November 14, 2008

Stocks rose 2.7% in Japan, 2.4% in Hong Kong, 3.7% in China, 1.4% in Australia and 3.1% in the Philippines. Equities are trading 3.4% higher in Britain and are up 3.1% in Germany and 2.1% in France.

Yen strength and commodity currency weakness dominated forex trading. The dollar fell 0.7% against the yen but shows gains of 2.5% against the kiwi, 2.4% against the Australian dollar, and 0.7% against both the Canadian dollar and euro. The buck also edged up  0.2% against sterling and 0.1% versus the Swissy.

Sovereign bond yields firmed in Europe but are lower in North America. The 10-year JGB yield slid half a basis point to 1.495%.

Gold advanced 3.3% to $728.40/ounce, but oil eased 0.7% to $57.85/barrel.

French GDP, which had been expected to dip, instead firmed 0.1% in 3Q08 and gained 0.6% from 3Q07. Domestic demand grew 0.2%.

Italian GDP fell more sharply than expected last quarter, with drops of 0.5% from 2Q and 0.9% on a year-over-year basis. The 0.5% decline of real GDP in Italy matched the drop in Germany, which was reported yesterday. German GDP was 0.8% higher than a year earlier.

Spanish GDP fell 0.2% last quarter, the first drop in 15 years. Such halved on-year growth to 0.9%. GDP was unchanged last quarter in the Netherlands and Portugal, and such rose by 0.5% in Greece and by 0.1% in Belgium and Austria.

Euroland growth as a whole posted a second straight 0.2% decline in the third quarter, halving the on-year advance to 0.7% from 1.4% in 2Q. Year-over-year growth in the final quarter of 2007 and first quarter of 2008 had been 2.1%.

Euroland consumer prices were flat m/m in October. The 12-month inflation rate fell to 3.2% from 3.6% in September, 3.8% in August, and a peak of 4.0% in July. Core inflation eased to 2.4% from 2.5% in September and 2.6% in August. In Germany, consumer prices fell 0.2% in October and rose 2.4% y/y, down from 2.9% in the year to September and 3.3% y/y in June and July. These price data, like the GDP figures, were mostly in line with expectations and fortify the likelihood of an ECB rate cut next month of at least 50 basis points.

Peru’s central bank left its benchmark interest rate at 6.5%. This result had been expected.

A deputy governor from China’s central bank said the priority has shifted to averting deflation. Inflation risks have disappeared.

Euribor rates for 1-week, 3-month, and 6-month maturities edged lower yet again.

French nonfarm employment slid 0.1% last quarter and rose just 0.4% from 3Q07. INSEE’s quarterly investment survey showed less planned investment in 2008 than the July survey and an expected drop of business spending next year.

Leaders from the G-20 will meet today and tomorrow in Washington to discuss the financial crisis and explore possible changes in the international monetary system. U.S. officials do not want radical modification in the present system.

At 13:30 GMT, U.S. retail sales and import prices get reported. At 15:00 GMT, the preliminary consumer confidence indication from U. Michigan follows.

Results from Canada’s monthly manufacturing survey also will be released today.


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