New Overnight Developments Abroad: Japanese Business Sentiment Sharply Lower

December 15, 2008

Equities rallied in the Pacific Rim and Europe despite poor Japanese and Chinese data. The Nikkei advanced 5.2%. Stocks also rose 4.9% in South Korea, 3.0% in Taiwan, 7.6% in Indonesia, 2.0% in Singapore, 1.5% in India, 2.0% in Hong Kong and 2.3% in Australia. The German Dax, Paris Cac, and British Ftse are trading up by 1.9%, 0.9%, and 0.8%.

The dollar’s depreciation late last week has been extended. The U.S. currency lost another 1.2% against the Canadian and New Zealand dollars, 0.6% versus the euro, 0.4% against the Swiss franc, 0.2% against the Australian dollar and yen, and 0.1% relative to sterling.

Russian officials let the ruble depreciate another 0.6% against the dollar. The Ukraine hryvnia sank to a record low of 8.05/dollar as officials did not intervene.

Sovereign bond yields fell sharply in Europe. The 10-year JGB slid 2 basis points to 1.38%. Euribor rates eased again.

Oil and gold advanced by 5.0% to $48.60/barrel and 0.8% to $828.20/ounce.

The Bank of Japan’s quarterly Tankan survey of business conditions and sentiment exhibited broad weakness including the sharpest 3-month decline in sentiment among big manufacturers (to -24 from -3) since 1974. Business spending in fiscal 2008 is now expected to drop, and projected earnings are seen falling 12% on average for all firms. Deflation appears to lie ahead.

Chinese industrial production recorded a sharply reduced 5.4% 12-month rise in November, down from 8.2% in October and 15.2% in the first nine months of 2008. M1 growth slowed to 6.8% year-on-year in November from 8.9% in October, 11.5% in August, 17.9% in May, 19.2% in February, and 21.7% in November 2007. M2 grew 14.8%, lowest in 3-1/2 years. Yuan lending, however, accelerated to 16.0% on-year from 14.6% in October.

Italian harmonized consumer price inflation in November was revised down a tenth to -0.5% month/month and +2.7% year/year.

Turkey real GDP decelerated to +0.5% year/year in 3Q08 from 2.3% in 2Q. The slowdown was more pronounced than expected.

Swiss producer/import prices fell 1.4% between October and November, the greatest monthly drop since March 1975, and were up just 1.1% from a year ago.

Consumer prices in Finland fell 0.5% in November, trimming the 12-month pace to 3.6% from 4.4% in October.

Britain’s Rightmove house price index fell 2.3% m/m and 6.3% y/y in December.

Bank of Japan Governor Shirakawa warned of negative growth next fiscal year.

ECB President Trichet warned governments to obey Euroland’s fiscal deficit and debt ceilings.

New Zealand’s PSI-services index showed faster contraction in November with a reading of 47.3, donw from 48.7 in October and 62.6 a year ago.

The United States will be releasing several pieces of data today: the Treasury’s monthly capital flow figures, the Empire State manufacturing index, the NAHB index, and industrial production and capacity usage.


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