New Overnight Developments Abroad: Kiwi and Sterling Weakened Ahead of Central Bank Meetings

December 3, 2008

The dollar is 1.0% higher against the New Zealand dollar and British pound. Central bank policy meetings Thursday in New Zealand and Britain are expected to result in interest rate cuts of over 100 basis points.

The dollar otherwise shows gains of 0.4% against the euro, 0.3% against the Aussie dollar, 0.2% against the Swissy and 0.1% versus the Canadian dollar, but the U.S. currency lost 0.3% against the yen amid another wave of risk aversion. Markets await the outcome of central bank meetings tomorrow in Sweden, New Zealand, Euroland, and Britain, as well as the U.S. labor market survey due Friday.

The Nikkei climbed 1.8%. Elsewhere in Asia, equities leaped 4.5% in China, aided by government share purchases, and also gained 1.4% in the Philippines and Hong Kong and 1.5% in Thailand where the central bank 1-day repo rate was slashed to 2.75% from 3.75%. Australian shares firmed 0.2%.

European stock markets are lower, in contrast, with drops of 1.7% in Germany, 1.4% in France, 0.9% in Sweden, 0.7% in Switzerland, and 0.5% in Britain.

The yield on 10-year JGB yields recovered 4 basis points to 1.39%. Sovereign bond yields are higher in North America and mixed in Europe.

Oil edged back up 0.6% after dipping under $47 per barrel. Gold prices slid 0.8% to $777.30/ounce.

Euribor rates again eased. The 3-month rate is at 3.74%.

Managers of a Chinese sovereign wealth fund said they will not invest in U.S. financials. Regulatory environment is too unsettled.

The Bank of Korea held a meeting to discuss more ways to ease liquidity strains. Japanese officials are considering a fiscal plan to support its labor market.

U.S. auto sales slumped over 36% y/y in November. German car sales dropped 17.6% on-year last month. New Zealand car sales plunged 27.2% y/y. Weak demand for motor vehicles is a global problem and has not responded to the $100 per barrel decline in oil prices since mid-July.

Euroland’s flash service-sector PMI reading of 43.3 in November was revised down to 42.5, a record low following 45.8 in October. Consequently, the Bloc’s composite PMI for both services and manufacturing was revised to 38.9 from a preliminary 39.7 and 43.6 in October. Germany posted PMI scores for November of 45.1 for services, lowest since May 2003, and 39.8 for the composite index. The French scores were 46.2 on services and 41.2 on its composite index. Italy‘s service-sector PMI fell to 39.5 from 45.7 in October (a reading of 40 was expected). Spain’s service index was 28.2, also below expectations, following 32.2 in October and 50.7 a year earlier. Ireland’s service-sector PMI was merely 32.6, a series low and down from 36.1.

Retail sales in Euroland slumped 0.8% in October, twice as much as the consensus expectation, and by 2.1% from October 2007. The case for a bigger-than-50-basis point rate cut tomorrow by the ECB keeps mounting.

Australian real GDP barely grew last quarter, posting a non-annualized rise of 0.1% with weak personal consumption and a negative contribution from net exports. The result was weaker than the upwardly revised second-quarter growth of 0.4% and cut on-year economic growth to 1.9% from 2.9% in 2Q and 4.3% in the middle of 2007. Former Governor of the Reserve Bank of Australia MacFarlane said there is more scope to cut interest rates following cuts since early September of 300 basis points to 5.25%.

The British PMI services index slumped to a series low of 40.1 in November from 42.4. The sum of that score of 40.1 and an earlier reported manufacturing PMI of 34.4 is 74.5, down from 83.9 in October, 106.3 in November 2007, and a peak of 113.9 in August 2007 when the global financial market crisis began.

British on-year shop price inflation decelerated to 2.7% in November from 3.0%. The output price component of the PMI service index fell below 50 to 49.2, lowest in seven years. Euroland’s output price score of 47.1 was the lowest since July 2003.

PMI service readings fell by 1.9 points to 40.7 in Norway and by 10.2 points to 37.2 in Russia.

South Korean forex reserves fell another $11.7 billion last month to a 46-month low.


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