New Overnight Developments Abroad: European Stocks, Bond Yields, and Euro Dropped

November 26, 2008

The dollar is unchanged against the Canadian dollar and yen but has climbed 0.9% against the Swiss franc, 0.8% versus sterling and 0.7% relative to the euro.

Commodity currencies are narrowly mixed.

The Paris Cac (-2.4%), German Dax (-1.5%) and British Ftse (-2.1%) show big losses on recessionary concerns. Equities are off 1.5% in Sweden and Switzerland. The Nikkei also fell (-1.3%) as Fitch downgraded Toyota’s credit rating to AA. But some Asian bourses did well: South Korea +4.7%, Hong Kong +3.8%, India (+3.8%) and Singapore (+3.5%), for instance.

The 10-year JGB yields slid another 2 basis points to 1.385%. Sovereign debt yields in Europe fell more sharply.

Oil advanced 1.9% to $51.76/barrel. Gold edged 0.3% lower to $817.90 per ounce.

The People’s Bank of China reduced its benchmark interest rates by 108 basis points to 5.58% on lending and 2.52% on deposits. Reserve requirements were cut to 16% from 17% for the five largest banks and to 14% from 16% for all other banks. Earlier easings were announced on September 15, October 8, and October 29. Before Sept 15, the lending rate was at 7.47%, and the deposit rate was at 4.14%; reserve requirements were at 17.75% for the largest banks. Today’s action followed a forecast of 7.5% Chinese growth in 2009 by the World Bank, which would be the lowest since 1990 for the world’s third largest economy. Officials took today’s action to assure adequate liquidity and thereby promote growth.

Chinese consumer confidence edged down to 92.4 in October from 93.4 in September and 94.5 in July.

The EU Commission has recommended a fiscal stimulus of EUR 200 bn (1.5% of GDP), with 85% of such being implemented by member states.

Five German states reported November inflation data that were much softer than anticipated. In four states, prices fell 0.5%, and they dropped 0.6% in the other. Energy and food costs were much lower. Clothing was soft too. On-year inflation to be near 2% versus peak of 3.3%. German import prices fell 3.6% on month in October and rose 2.9% from October 2007. On-year import price inflation was at 7.6% in September.

A 0.5% drop of British GDP in 3Q (not annualized) was confirmed, with consumption off 0.2% (most since 1Q95), investment down 2.4%, exports off 0.3%, and wages tumbling 0.8%. GDP was 0.3% higher than in 3Q07. The GDP deflator increased 2.7% y/y.

Italy’s business sentiment index sank more than expected from 76.9 in October to 72.2 in November, lowest since August 1993. Weaker business sentiment had earlier been reported in Germany, France, Holland, and Belgium.

French consumer confidence was buoyed by lower inflation in November, firming 5 points, but at -43 such remained very weak.

Icelandic CPI inflation accelerated to 17.1% y/y in November. South African targeted CPIX eased in October to 12.4% from 13.0%.

Polish retail sales grew 7.9% in the year to October, down from 11.6% y/y in September and less than forecast.

ECB President Trichet hinted there will be a rate cut next week but gave no clue to its amount.  Stark, a Governing Council member, warned against overly lax fiscal policy.

Euribor rates subsided further. The 3-month rate is now at 3.90%.

There were reports that former Fed Chairman Paul Volcker will head a new advisory panel in the Obama administration to recommend ways to stabilize the financial markets.

Two other central banks loosened monetary policy. Reserve requirements were loosened in the Ukraine. Georgia cut its benchmark rate to 9% from 10%.

South Korea’s manufacturing business sentiment index plunged to 53 in December from 65 in November.

Skilled job vacancies in Australia fell 11.9% m/m and 38.3% y/y in November, but construction work in 3Q grew much more than forecast.

Before the U.S. Treasury market closes early for Thanksgiving today, investors will have new data to consider covering personal income, new home sales, the U. Michigan consumer sentiment index, the Chicago PMI, durable goods orders and weekly jobless claims.


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