New Overnight Developments Abroad: Awaiting FOMC and U.S. CPI and Housing Starts

December 16, 2008

A mixed dollar sees such off by 0.8% against the kiwi, 0.7% versus the yen, 0.4% against the Swissy and 0.2% relative to the Aussie dollar but up by 0.3% against sterling and 0.2% against the euro. The Canadian dollar is unchanged.

Equities are similarly mixed. In Asia, the Nikkei lost 2.1%, and the Philippine and Indonesian bourses fell 1.3% and 1.2%. Australian stocks fell 1.0%, but India (+1.5%), China (+1.0%). Thailand (+1.9%), and Hong Kong (+0.6%) are higher. In Europe, the Dax, Cac40, and Ftse are trading 1.5%, 0.6%, and 0.3% higher.

The 10-year JGB dipped to 1.365% initially on signs that the BOJ is more inclined to ease after the poor Tankan survey results but is now unchanged on balance at 1.375%. Sovereign bond yields are lower in the United States and Europe.

Oil rebounded 1.2% to $45.02/barrel, while gold is 0.2% softer at $834.50 per ounce.

Euroland’s Flash Composite PMI reading in December fell less than forecast to 38.3 from 38.9 in November and 43.6 in October. The factory index dropped to 34.5 from 35.6, while services deteriorated to a score of 42.0 from 42.5. Germany’s Flash readings were 39.6 on the composite index, off 0.2 points, 33.5 on manufacturing, down 2.2 points, and 46.4 on services, up 1.4 points. France reported a composite PMI of 38.4, off 2.8 points, with manufacturing off 1.4 points to 35.9 and services down 4.6 points at 41.6.

France also reported a third-quarter decline in jobs of 0.2%. Jobs rose 2.1% from 3Q07, however. French consumer prices fell 0.5% in November, led by a 5.5% monthly slump in energy prices. The French CPI rose 1.9% from November 2007. Core inflation had the same yearly rate, 1.9%.

British consumer prices slid 0.1% in November, somewhat less than forecast, and posted a 4.1% on-year increase, down from 4.5% in October but twice the target of 2.0%. Core CPI edged up a tenth to 2.0%. Governor King’s letter to Chancellor of the Exchequer Darling expressed confidence that inflation would drop steeply and warned that his next mandated letter may be explaining why inflation is lower than 1%. RPI inflation fell from 4.2% in October to 3.0%, lowest in 2-1/2 years.

Portuguese consumer prices fell 0.6% in November, slimming its on-year gain to 1.4% from 2.3% in October and 2.8% in the year to November 2007.

Chinese fixed asset investment posted a slower on-year gain in November but the 26.8% rise in July-November was identical to that in the first half of 2008. China’s central bank hinted that monetary policy may be eased further before yearend.

ECB President Trichet, however, suggested that monetary policy in Euroland may not be eased further next month. Likewise, minutes from the Reserve Bank of Australia imply that the 100-bp rate cut to a 6-1/2 year low of 4.25% took into account the fact that policymakers do not have a scheduled meeting in January. It’s now time to see how the economy reacts to the extensive easing, and an emergency meeting in January to cut rates further is not anticipated.

Remarks by Bank of Japan Governor Shirakawa imply that he is more amenable to undertaking quantitative easing steps such as buying corporate bonds. The BOJ released a quarterly flow of funds survey that showed Japanese household wealth falling 5.2% between mid-year and end-Sept, the most since at least 1979.

Russian industrial output swung to a year-on-year drop of 8.7% in November from rises of 0.6% in October and 5.3% in November 2007.

European car sales fell 25.8% in the year to November. Euroland jobs fell 0.1% in the third quarter, led by drops in Spain and Portugal. Italy’s industrial lobbying group, Confindustria, expects both 2008 and 2009 to be years of recession.

Japan’s tertiary index of service sector activity unexpectedly rose in October. Despite a 0.4% gain, however, the index was 1.5% lower than a year earlier and 0.5% below its third-quarter average level.

Residential housing starts in Australia fell 10.7% in the year to 3Q08.

Japanese real wages dropped for a seventh consecutive month in October.

The Ukraine hryvnia was supported with central bank intervention. Hong Kong’s Monetary Authority sold local currency to cap the HK$’s strength.

U.S. housing starts and building permits data arrive at 13:30 GMT. Canada’s monthly manufacturing survey is due at the same hour. The FOMC decision will be broadcast at 19:15 GMT. The Fed is expected to at least halve the funds rate to 0.5%, and whisper numbers look for something more dramatic.

Brazilian retail sales dipped 0.3% in October but posted year/year growth of 10.1%.


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