New Overnight Developments Abroad: Australian and Vietnamese Central Bank Rates Cut by 100 Bps

December 2, 2008

The dollar is mixed, with gains of 0.5% against sterling, 0.3% against the Swissy, and 0.1% versus the yen but losses of 0.5% against the Aussie dollar, 0.4% against the kiwi, and 0.2% against the euro. The Canadian dollar is unchanged.

Asian stocks mostly fell, with losses of 6.4% in Japan, 4.7% in the Philippines, 3.0% in South Korea and Singapore, 2.6% in Indonesia. Australia’s bourse dropped 4.7% in spite of the Reserve Bank’s greater-than-expected cash rate cut to 4.25% from 5.25% (see review).

European stocks are up. Dax +2.1%. Ftse +0.7%. Cac40 +0.6%. U.S. stock futures point to a rise at the open.

Euribor short-term rates again eased. Sovereign bond yields fell sharply most everywhere. 10-year JGB’s at 1.35%, down 5 basis points.

Oil touched a 3-1/2 year low of $47.36/barrel and is 1.8% lower on balance at $48.37. Gold eased 0.6% to $772/ounce.

The Reserve Bank of Australia cut its cash rate to 4.25% from 5.75% and a peak prior to Sept 2nd of 7.25%. Further rate cuts indicated as possible.

Vietnam’s base rate was cut for the fourth time since October by 1 percentage point to 10% from 11%. Reserve ratios were also lowered.

Australia’s current account deficit of A$ 9.736 billion in 3Q was less than expected and down by 30.7% from 2Q and 43.9% from a year earlier.

Australian retail sales unexpectedly rose 0.7% in October, and government spending in 3Q08 climbed 1.3%, more than assumed.

A Reuters Tankan proxy index that is calculated monthly plunged in November to -42 from -25 for manufacturers and fell to -16 from -9 for non-manufacturers. The data herald a bad Bank of Japan Tankan business survey due at mid-month. An emergency meeting of the Bank of Japan today voted unanimously not to cut the 0.3% overnight target rate. Policymakers instead unveiled more lenient collateral criteria and other technical steps to ease a corporate credit crunch. Shirakawa again warned of problems in cutting rates any lower but left that door open, saying that the quarterly Tankan survey would be especially examined. The next scheduled central bank meeting is set for December 18-19.

The Wall Street Journal said Goldman Sachs may suffer a loss of as much as $2 billion this quarter.

Producer prices in Euroland fell 0.8% in October, with declines of over 1% in Italy, Spain, Belgium, the Netherlands, and Portugal. The PPI rose 6.3% from a year earlier, down from 12-month gains of 7.9% in September and 9.2% in July. Non-energy producer price inflation slid to 3.2% from 4.1% in September and 4.4% in July.

Markets are pricing in a 100 basis-point Bank of England rate cut. A former policymaker from that bank who correctly predicted last month’s 150-bp cut, Buiter, thinks another 150-bp cut is in the offing for Thursday.

Pressure has mounted on the ECB to do more than 50 basis points. I attach 60% probability to a cut of 75 basis points. The ECB and Bank of England announcements are on Thursday. In the meantime, the Reserve Bank of New Zealand is expected to cut its cash rate sharply again tomorrow.

South African motor vehicle sales plunged 28.3% in the year to November.

Norwegian consumer sentiment deteriorated in 4Q08 to a -13.3 from +0.6 in 3Q. Such was the worst reading since this data series was unveiled in 1992.

Bank of Korea officials warned that growth may sink to less than 3% this quarter, weakest since 1Q05.

Swiss consumer prices fell 0.7% last month and to a 12-month rate of rise of 1.5% from 2.6% in October and September.

The British construction PMI had a record low reading in November of 31.8 after 35.1 in October. This series began in 1997.

Japan’s monetary base accelerated to 1.9% y/y in November from October’s 1.4% reading, following a rate cut to 0.3% from 0.5%.


One Response to “New Overnight Developments Abroad: Australian and Vietnamese Central Bank Rates Cut by 100 Bps”

  1. Simon says:

    Hi Larry,

    If the BoE take rates down to zero what do you think that means for Sterling relaitve to USD & Euro.

    I have heard parity called a couple of times.

    Hans Redeker at BNP reckons $1.27.

    Zero – unbelievably believable.