New Overnight Developments Abroad: Citigroup Gets $306 Billion Government Bailout

November 24, 2008

Stocks rallied in Europe and closed 2.7% higher in Japan in response to a rescue of Citigroup, sending a signal there will not be more Lehmans. The British Ftse (+4.0%), Paris Cac (+3.9%) and German Dax (+3.0%) are each sharply higher. Citigroup will issue $27 bn of preferred shares to the government, which in turn will cover bad assets beyond the first $29 bn of losses.

Stocks in Asia were mixed, with losses of 4.3% in China, 3.4% in South Korea, 2.9% in Thailand, 2.5% in Singapore and 1.3% in Malaysia but gains of 2.7% in Japan, 1.9% in the Philippines, and 0.3% in Australia.

The dollar is broadly lower, dropping below Friday closing levels by 0.9% against the euro, 0.8% versus sterling, 0.7% against the Canadian dollar and Swiss franc, 0.6% against the yen, 0.3% against the Aussie dollar, and 0.1% relative to the kiwi.

Sovereign bond yields are mostly higher.

Oil is steady and very near to $50/barrel. Opec is aiming to cut output again. Gold jumped 2.9% and is back above $800/ounce.

The British pre-budget statement at 15:30 GMT today will include temporary tax cuts and other stimulus worth about $30 bn. German officials continue to reject tax cuts despite a much weaker-than-anticipated IFO business climate index.

The IFO index fell 4.4 points to 85.8 in November, lowest since February 1993 and 18.8 points less than last March. Current conditions dropped 5.1 points to 94.8, while expectations fell 4.4 points to 77.6. Markets had expect a drop of only about half as much as occurred. Manufacturing suffered the deepest decline, but all sectors were much lower. The IFO’s services index worsened to -7.3 from -4.3 in October and +17.2 in November 2007.

Euroland industrial orders tumbled 3.9% in September, led by a 9.4% decrease in Germany’s component. Orders fell by 7.4% at a seasonally adjusted annual rate in the third quarter.

Euroland’s current account deficit doubled to EUR 10.6 billion in September from EUR 5.3 bn in October on a seasonally adjusted basis. There have been five consecutive monthly deficits in a row. In unadjusted terms, portfolio and direct investment generated a EUR 38.6 bn inflow in September after a EUR 28.0 bn outflow in August.

The Canadian Prime Minister and Finance Minister at the annual APEC conference of Pacific Rim leaders said Canada may experience negative growth in both 4Q08 and 1Q09, hence qualifying as a “technical recession.” A budget update is due later this week. The U.S. did not seal a firm date for an Andean-U.S. bilateral trade agreement at the APEC conference but promised to announce such soon.

Obama will unveil his top economic advisors at a press conference at 17:00 GMT from Chicago.

Japan observed Labor Thanksgiving. The central bank of Thailand signaled a readiness to begin cutting rates. It tightened twice this past summer. The Bank of Korea is putting up half the money for a $7 bn fund to recapitalize commercial banks and hard-hit firms. Singapore consumer prices firmed 0.8% m/m and 6.4% y/y in October. An officials of the People’s Bank of China called interest rates “relatively appropriate.” Further cuts nonetheless are widely expected.

Euribor rates fell, and Smaghi of the ECB expressed satisfaction with a softer euro. There are mounting signs of a credit card distress.


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