New Overnight Developments Abroad: Officials Get Cold Feet

December 12, 2008

The U.S. senate rejected a $14 billion bailout for Detroit automakers. Leaders in the EU scaled back their fiscal stimulus proposals to 1.5% of GDP after objections from German leaders. More ECB officials suggest that interest rates will not be lowered much further despite deepening recession.

Recession fears depressed stocks sharply in Asia and Europe. Asian losses amounted to 5.6% in Japan, 5.5% in Hong Kong, 4.4% in South Korea, 4.2% in China, 4.1% in Indonesia, 3.0% in Singapore, and 2.0% in the Philippines. Australian equities fell 2.4%. European stocks are down 4.1% in Germany, 4.8% in France, 4.9% in Italy, 4.3% in Sweden, 3.2% in Switzerland, and 3.2% in Britain.

Sovereign bond prices rallied, and yields are lower. The ten-year JGB yield fell 2 basis points on balance to 1.395%, but got as low as 1.35% at one point.

Commodity prices were depressed by the lack of an automakers’ bailout. Gold slid 1.5% to $813.80, and oil slumped back 5.5% to $45.34/barrel.

The yen and dollar are stronger. The yen touched 88.40 per dollar, best since early August of 1995, and is 1.2% firmer on balance against the dollar at 90.44. The dollar otherwise rose 2.6% against the Australian dollar, 1.0% versus the New Zealand dollar, 0.9% against the Canadian dollar, 0.8% versus sterling, and 0.4% relative to the euro. The Swiss franc ticked up 0.1%.

The rouble suffered its worst weekly performance against the euro since 2000. The Ukraine hryvnia fell to a record low of 7.875/$, 40% below its level at end-August.

Euribor short-term rates from 1-week to six-months in maturity fell about a quarter of a percentage point this week. The 3-month rate is now 3.28%.

Japanese consumer confidence fell a full point to another record low of 28.4 in November. Revised industrial production data still show such plunged 3.1% in October and by 7.1% from a year before. Capacity usage fell 3.9% in Japan and 8% from a year earlier.

Euro area industrial production fell 1.2% in October after a 1.8% drop in September, and such posted the largest 12-month fall (-5.3%) since July 1993. October output was 2.1% lower than the 3Q average level after dropping by 3.5% and then 4.7% in 2Q and 3Q at an annualized rate. In comparisons of October to September, industrial output fell by 6.4% in Ireland, 2.7% in France, 2.0% in Germany, 1.9% in Holland and Spain, and 1.2% in Italy.

Labor costs in Euroland accelerated to a year-on-year rise of 4.0% in 3Q08 from 2.8% in 2Q08 and 2.5% in 3Q07. This spike will prove temporary.

Icelandic real GDP fell 3.4% in 3Q08 after rising 4.7% in the second quarter. On-year growth swung to -0.8% from +4.8%.

Indian industrial production fell 0.4% in the year to October, the first drop since 1993. Output had risen 11.6% in FY06/07 and 8.1% in fiscal 2007/8.

The Hong Kong Monetary Authority sold local currency in intervention to keep the HK$ from strengthening beyond 7.75 per U.S. dollar. Hong Kong industrial output fell 6.7% y/y in 3Q08.

Industrial output in Hungary fell by a steepening 7.2% in the year to October.

Japan’s LDP government unveiled an array of proposed tax cuts in a second fiscal stimulus.

New Zealand real retail sales fell 1.3% in October, much worse than expectations of no change. The 12-month rise was just 0.7%. Automotive sales plunged 14.5%. The central bank broadened the range of collateral it will accept. Another rate cut in January seems increasingly probable.

The Bank of France revised down projected fourth-quarter 2008 economic growth to -0.7% and announced a 10-point drop in its business sentiment index to 68, a record low for this data series going back to 1987.

Chinese retail sales advanced 20.8% in the year to November, down from 22.0% y/y in October but better than feared.

Household credit in South Korea climbed 10.7% in the year to 3Q08, same as the pace in the second quarter.


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