New Overnight Developments Abroad: Continuing Collapse of World Equities

November 20, 2008

Following yesterday’s tumble in U.S. share prices and in response to yen appreciation against all other currencies, the Nikkei fell 6.9%. Elsewhere in Asia, stocks dropped 6.7% in South Korea, 4.5% in Taiwan, 4.0% in Hong Kong, 3.7% in India, 3.6% in Thailand, 3.5% in the Philippines, 3.3% in Vietnam, and 3.1% in Singapore. Australian equities lost 4.2%. In Europe, the Paris Cac is off 3.2%. The Ftse is down 2.3%. Swiss shares lost 4.2% with a heavy hit to UBS. Stocks in Italy and Sweden fell by 2.2% and 2.5%, while the German Dax is 2.8% lower.

Emerging market currencies continued to slump. Indian rupee hit a record low. The South Korean won lost 3.4%, moving through 1500/$ to 1523. The South African rand dropped 1.4%. The central bank in the Philippines intervened to defend the 50 peso per dollar level and refrained from cutting interest rates. Its key overnight lending rate remains at 6.0%, as officials await some recovery in the peso before easing.

Sovereign bond yields tumbled in Europe. Ten-year gilts fell below 4% for the first time in nearly three years. 10-year JGB slid 0.5 bp to 1.465%.

Oil fell another 2.9% to $52.07/barrel and is closing in on its January 2007 low of $49.90/barrel. But Gold firmed 1.2% to $744.70/ounce versus $712.30 as recently as November 12th.

The yen remains king of all currencies, advancing 0.5% against the dollar. This strength is going to aggravate and extend Japan’s recession. Traders wonder when Japanese officials are going to intervene to stop the move. The U.S. currencies appreciated 1.5% against the Australian dollar, 0.9% against the New Zealand kiwi, 0.8% relative to sterling, and 0.2% against the Canadian dollar. The U.S. currencies is flat against the Swissy and down 0.2% against the euro.

In a controversial and unexpected move, Turkey’s central bank eased 50 bps. The Turkish benchmark interest rate is now 16.25%.

Vietnam’s central bank cut rates for the third time in four weeks. The base rate was reduced to 11% from 12%.

Moody’s warned of a possible recession in Poland.

A press report claimed Taiwan GDP fell below its year-earlier level in 3Q08 for the first time since 2003.

Iceland secured $2.1 bn from the IMF and is getting another $2.5 bn from Sweden, Norway, Denmark and Finland. The IMF projects a 9.6% decline in Icelandic GDP next year.

Bini Smaghi of the ECB said more rate cuts are possible. Bank of Canada Governor Carney said further rate reductions are likely to be needed. Canadian Prime Minister Harper took a further step preparing the nation for a budget deficit. Lacker of the Fed criticized the central bank’s inconsistency in handling Bear Stearns, AIG and Lehman Brothers.

British real retail sales slid only 0.1% in October compared to a consensus forecast of -0.9%. The on-year rise was 1.9% after 1.7% in September. Food store sales rose 1.0%, while household goods tumbled 3.4%.  The Council of Mortgage lenders reported a 6.9% rise in mortgage lending, but such was down 44% from Oct 2007. British M4 growth accelerated to 15.1% y/y in October from 12.6% in September, a sign that lower interest rates are having some effect.

British public-sector net borrowings posted an October deficit for the first time in 14 years. The PSNCR in April-October was 125% wider than a year before.

Italian industrial orders fell 1.5% m/m but rose 1.2% y/y in September.

Euribor money market rates eased somewhat further. The 3-month euribor of 4.076% constitutes an 18-month low.

German producer prices were unchanged in October, and the on-year advance receded to 7.8% from 8.3% in September. Non-energy PPI inflation fell sharply to 2.9% from 3.6%.

Japanese customs clearance exports fell 7.7% y/y in October, including the first drop in shipments to Asia (-4%) since 2002. Imports grew 7.4% y/y, and the trade balance swung to a deficit of Y 64 bn from a surplus in October 2007 of Y 999 bn. The seasonally adjusted trade deficit of Y 176 bn was 162% wider than the deficit in September. Stock and bond transactions last week generated a Y 979 bn capital outflow, as foreign net sales of Japanese equities shot up 158% from the previous week.


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