New Overnight Developments Abroad: Counter-Trend Day in Markets

November 21, 2008

Stocks rose from multiyear lows in Europe and Asia. The yen and dollar are softer. Sovereign bond yields climbed in North America and Europe. Oil is firmer.

The Nikkei advanced 2.7%. Stocks rose 2.9% in Hong Kong, 1.9% in Australia, 5.8% in South Korea, 5.5% in India, 3.0% in Singapore, 0.9% in Britain and 0.6% in both Germany and France. The Wall Street Journal is reporting that Citigroup may be sold or seeking a merger.

The dollar recovered 1.5% against the yen but fell otherwise by 2.7% against the Australian dollar, 2.2% against sterling, 2.0% against the kiwi, 1.5% against the Canadian dollar, 1.3% against the euro but only 0.4% against the Swiss franc. Bullard of the Saint Louis Fed suggested a possible reliance on quantitative easing to avert deflation.

The yield on 10-year JGB’s fell 5.5 basis points to 1.41% and plumbed to an intra-day low of 1.375% versus 1.50% a week ago. But other sovereign bond yields rose from prior lows on speculation of more macroeconomic stimulus.

Oil rose back above $50/barrel and is up 1.3% on balance. Gold gained similarly, up 1.2% to $757.70 per ounce.

The South Korean won softened further to a 10+ year low of 1524.5 per dollar. Real household spending in the economy fell 2.4% in the year to 3Q08.

After meeting for six hours and 2 minutes, the Bank of Japan as expected kept a 0.3% rate target for overnight money. BOJ officials expect a recession to persist for “several” quarters and now associate net downside risks with both growth and inflation, Governor Shirakawa remains resistant to the idea of cutting interest rates closer to zero or returning to quantitative easing.

Growth in Singapore fell 6.8% saar in 3Q08 after negative growth of 5.3% saar in 2Q. GDP also fell 0.6% from the third quarter of 2007.

The Reserve Bank of Australia spent a record A$ 3.15 bn in intervention support for the Aussie dollar last month.

Bundesbank President Weber and a hawk on the ECB Governing Council sees room for looser monetary policy.

Weaker-than-expected Flash PMI scores are also fanning speculation the ECB might ease in December by more than 50 basis points. Euroland’s composite PMI fell 3.9 points to 39.7 in November, a record low since this series began in mid-1998. The biggest deterioration was concentrated in manufacturing, down to 36.2 from 41.1 in October. The services PMI reading was 43.3, down from 45.8 in October and 48.4 in September. Germany reported  preliminary PMI scores of 36.7 in manufacturing after 42.9 in October, 46.2 in services after 48.3, and 40.7 on the composite index, down from 45.3 in October and 53.6 a year earlier. French scores were 42.0 for the composite, 37.9 for manufacturing, and 46.6 on the services PMI.

French consumer spending sank 0.4% in October following a 0.5% rise in September and a 0.2% drop in August. On-year consumer spending slowed to just 0.7%.

Italian retail sales were unchanged in September and up just 0.5% from September 2007.

British home repossessions rose 11.9% in the third quarter above the 2Q level. John Lewis department store sales slumped 14% y/y in the week of Nov 15.

The downtrend in euribor money market rates continued. The 3-month rate of 4.02% constitutes an 18-month low.

Canadian consumer price inflation fell much more sharply in October than forecast. Total consumer prices dropped 0.5% seasonally adjusted and by 1.0% on an unadjusted basis, most in 49+ years. On-year total CPI inflation decelerated to 2.6% from 3.4% in September and 3.5% in August. Targeted core CPIX dipped 0.2% m/m and showed an on-year advance of 1.7%, same as in September. The Bank of Canada had projected on-year CPI inflation this whole quarter will average 2.6%.


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