New Overnight Developments Abroad: Continuing Fallout from Citigroup Bailout

November 25, 2008

The dollar relapsed 1.2% against the yen. Against other currencies, the U.S. currency has trimmed Monday’s heavy losses with overnight gains of 2.2% against the Australian dollar, 1.7% against the New Zealand dollar, 0.8% against the Canadian dollar, 0.7% against the euro, and 0.6% versus sterling and the Swiss franc.

The Nikkei jumped 5.2%. Stocks also rose 6.0% in the Philippines, 5.8% in Australia, 3.4% in Hong Kong, 2.6% in Taiwan, 1.5% in Thailand, 2.0% in Singapore, and 1.1% in Indonesia. European bourses are mixed, with the Paris Cac up 0.3%, the British Ftse up 0.5%, but the German Dax off 0.8%.

Ten-year sovereign bond yields are sharply lower in North America, lower in Europe and down half a basis point at 1.405% in Japan.

Oil (-4.2% to $52.23/barrel) and gold (-1.5% to $807.80/ounce) relinquished a chunk of Monday’s gains.

New OECD forecasts project 2009 growth  of -0.9% in the U.S., -0.6% in Euroland, -0.1% in Japan and -1.1% in Britain. The projections show the United States emerging from recession sooner and more forcefully than Japan or Europe.

Data confirm a 0.5% drop in German real GDP last quarter despite stronger domestic demand and an inventory run-up. Exports fell 0.4%, while imports jumped 3.8%. Net exports as a result exerted a 1.7 percentage point drag on GDP growth following a 0.5 percentage point boost in 2Q08. On-year growth slowed to 1.3% from 3.3% in 2Q. Germany’s Chamber of Commerce projects negative growth in 2009 of -0.5%.

Consumer confidence bumped upward to 2.2 in Germany from 1.9. A drop to 1.5 was expected. Italian consumer confidence, however, fell to 100.4 from 102.2 on labor market concerns, and French business sentiment slumped to 80 in November from 87 in October and 97 in July. 80 was the lowest score since October 1993. Italy’s trade deficit of EUR 20.14 billion in January-October was 49% wider than a year earlier.

Japanese corporate service prices showed deflation returning. The CSPI dropped 1.2% in October from September and by 1.4% from October 2007, the biggest on-year decline since 2003. Lower overseas freight costs were the main depressant on prices.

A survey in New Zealand indicated inflation expectations are receding there.

The Bank of Japan’s monthly economic assessment downgraded industrial production to “continues to decrease and at a faster pace” and exports to “have decreased.” Overall assessment is that activity has been “increasingly sluggish.” Sluggish in this use means recessionary. The assessment said funding conditions have deteriorated, and that financial conditions are less accommodative.

Various Bank of England officials including Governor King warned of a steep recession. One of them said sterling had depreciated in the past year at a “right order of magnitude.”

Sri Lanka’s central bank cut reserve requirements by 150 basis points to 7.75%. The central bank in Jordan cut reserve requirements by 100 bps to 9% and key interest rates by another 50 basis points.

British mortgage approvals, according to BBA data, fell 7.7% in October and by 52% from a year earlier. The data were weaker than forecast.

British capital spending last quarter slid 0.2% from 2Q and by 0.5% from 3Q07. These readings were better than feared.

French housing starts sank 20.6% in the year to August-October. That was the twelfth on-year drop in a row and the biggest in four months.

The U.S. Treasury will be unveiling a new program to support consumer lending, according to the Wall Street Journal.

Two members of the ECB Governing Council made remarks dispelling speculation that a bigger-than-50 basis point rate cut might be taken next week.

One of the Bank of Canada’s six Governing Council members has resigned. There is a vacancy too for the New York Fed President, who is a permanent voting member of the FOMC.

South African GDP growth slowed to a 10-year low of 0.2% at a seasonally adjusted annual rate last quarter from 5.1% saar in 2Q08.

Euribor rates eased further. The 3-month rate was 3.94%, lowest in 19 months.

The U.S. reports several key indicators later today, including revised GDP, the Case-Shiller house price index, and consumer confidence.


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