New Overnight Developments Abroad: Huge Rate Cuts in New Zealand, Vietnam, and Sweden

December 4, 2008

The Swedish Riksbank repo rate was reduced 175 basis points to 2.0%. Officials signaled steadiness at that level for now.

New Zealand’s cash rate was cut by 150 bps to 5.0%. At least another 50 bps and possibly more seen likely in January.

Vietnam’s base rate was cut another 100 bps to 10%, and reserve requirements were reduced by 2 percentage points.

Cumulative rate cuts so far amount to 275 bps in Sweden, 325 bps in New Zealand, and 400 bps in Vietnam.

These larger-than-expected monetary policy moves have whetted market speculation for big cuts by the ECB and Bank of England today.

In response, the yen and dollar are stronger against major European currencies, European stocks have rallied and sovereign bond yields are lower. The yen rose 0.8% against the dollar, which otherwise has climbed 1.7% against sterling and 0.7% against the euro, Canadian dollar, and Australian dollar. The dollar is up 0.4% against the Swiss franc but off that amount against New Zealand’s kiwi. The Swedish krona lost 1.0% against the euro.

The Nikkei fell 1.0%. Asian markets were mixed, with China up another 1.6% and India up 5.5% but Korea, the Philippines and Hong Kong down by 1.6%, 0.8% and 0.6%. Australian shares are unchanged. In Europe, stocks are trading up by 2.0% in Sweden, 2.9% in Germany, 1.7% in Switzerland, 1.3% in Italy, 2.1% in France, and 1.6% in Britain.

The 10-year JGB yield is off 1 basis point at 1.37%. 10-year bond yields hit a record low in Europe and a 50+ year low in the United States.

Oil touched a low of $45.30/barrel, weakest since February 2005, and is off 1.3% net at $46.19. Gold edged 0.3% lower to $772.50/ounce.

Australia’s trade surplus widened 135% in October as exports jumped 6.7% on month, while imports firmed 0.3%. Australian building approvals fell 5.4% m/m and 26% y/y in October, much worse than anticipated.

In Japan, the Ministry of Finance quarterly business survey revealed drops in the year to 3Q08 of 13.0% in investment, 22.4% in profits, and 0.2% in sales. The data suggest a downward revision to 3Q08 GDP growth. Stock and bond trades last week generated a Y 451 bn outflow.

In Britain, the Halifax house price index sank 2.6% in November, worst since September 1992, and by 14.9% from Nov 2007, worst since at least 1993. Prices are 18% lower than in August 2007. New car sales in the U.K. dropped 36.8% in the year to November, most since June 1980.

Euroland revised third-quarter GDP confirmed negative growth of -0.2%, with flat consumption, another drop in investment, a big drag from net foreign demand, and an unplanned run-up in inventories. On-year growth was only 0.6%.

Swiss third-quarter GDP was unchanged last quarter and up 1.6% year-on-year, down from 2.6% in the year to 2Q08. Investment was weak.

A high Chinese official urged the U.S. to do more to ensure the security of Chinese financial investments in the United States.

French quarterly unemployment ticked up to 7.7% in 3Q from 7.6% in 2Q. It’s actually now above 8% according to EU Commission figures.

The 3-month euribor rae fell further to 3.67%.

Business sentiment in South Africa bounced to 86.7 in November from a 5.5-year low of 84.2 in October.

India is poised to cut interest rates, according to a senior government official.


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