New Overnight Developments Abroad: Verbal Trashing of Yen

December 18, 2008

Japan’s finance minister asserted that officials have the means to halt yen appreciation, sending Japan’s currency down 1.4% against the dollar.

The dollar otherwise fell 1.9% against the Swiss franc, 1.7% against the kiwi, 1.3% against the euro and 0.6% against the Canadian dollar. Sterling, off 0.2% versus the greenback, remains weak. The Swissy’s lead role lately is typical of periods when investors are worried about the long-term implications of Fed policy. In the 1970’s, the franc acquired a reputation for being paper gold.

Russian officials let a little more air out of the ruble, which slid 1.4% against its target basket to 11.6% below its 3Q peak. The Ukraine hryvnia fell 5.6% on top of an 11.6% decline on Wednesday, and there are reports the 18% refinancing rate will be raised additionally. Intervention was again needed to hold the Hong Kong dollar at its range ceiling against the U.S. dollar. The Reserve Bank of Australia spent A$ 134 million of intervention to counter Aussie dollar weakness in November. The Aussie currency, like many others, has turned up against the buck this month.

Asian stocks closed mostly up, with gains of 3.7% in India, 2.1% in Malaysia, 2.2% in China, 1.5% in Vietnam, 1.1% in Singapore, 1.3% in Thailand, 0.6% in Japan, and 0.5% in South Korea. Australian equities firmed 0.3%. In Europe, the Paris Cac and British Ftse are off 1.3% and 0.3%, but the Dax is 0.5% higher.

Sovereign bond yields are lower most everywhere, including a 2.5 basis point drop to 1.265% on the 10-year JGB, as investors expect the Bank of Japan to cut its benchmark rate tomorrow.

Oil recovered 1.5% but remains below $41/barrel despite OPEC plans for a big output cut next month. Gold firmed 0.6% to $874/ounce.

South Korea is launching a 20 trillion won facility to help recapitalize its banks.

As expected, the central bank in The Philippines cut its overnight borrowing target rate to 5.5% from 6.0%. The rate had been raised by 25 bps in August, 50 bp in July and 25 bp in June. The repo rate of Namibia’s central bank was cut 50 basis ponts to 10.0%. Brazil’s central bank revealed that a 25-bp rate cut was considered at last week’s policy meeting.

The German business climate index calculated by the IFO Institute weakened more than forecast to 82.6 from 85.8 in November, 92.9 in September, and 103.3 at end-2007. Such is the weakest since 1982. Deterioration in December was concentrated in current conditions, down 6.1 points to 88.8, while expectations seem to be flattening. By sector, manufacturing took a big hit, dropping 10.7 points, but retail firmed 1.6 points. Construction was steady but very weak.

The sister IFO index for services fell to -14.5 from -7.3 in November and +18.4 a year earlier.

Japanese stock and bond transactions generated a Y 685 billion capital outflow last week.

Charles Bean of the Bank of England said interest rates might eventually decline to zero. Consistent with a recent pattern, however, U.K. retail sales volume firmed 0.3% in November, a better result than expectations based on other indications that such likely dropped. On-year retail sales growth of 1.5% was still at a 33-month low. The U.K. public sector net borrowing in November of Gbp 15.997 bn was the largest monthly deficit since at least 1993. The current budget gap also constituted a record, but the public sector net cash requirment of Gbp 10.3 bn was less than expected.

British M4 growth accelerated to a 12-month pace of 16.3% in November from 15.2% in October. The Council of Mortgage Lenders (CML) reported drops in gross mortgage lending in November of 21.5% from October and 51.2% from a year earlier.

Euroland’s seasonally adjusted trade deficit narrowed to EUR 1.3 bn in October from EUR 4.4 bn in September, EUR 5.5 bn in August, and Eur 6.1 bn in July. In the three months between July and October, exports fell 3.2%, but imports dropped 6.3%.

Retail sales in the Czech Republic swung to a year-on-year drop of 3.3% in October from a 6.1% rise in September.

China’s central bank leader made more noises hinting at a pretty imminent further cut in the bank’s benchmark rates.

The trend in European commercial vehicle sales continued to weaken November with a 31% on-year drop.

New Zealand business sentiment fell to its lowest level since at least 1988 in December.

The Bank of Canada Governor said it’s early for the Bank of Canada to be copying the Fed’s quantitative easing. The Finance Ministry is projecting a 2009 decline in GDPof 0.4%, which would be the first calendar year decrease in 18 years.


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