New Overnight Developments Abroad: CPI Data Augment Deflation Fears

January 5, 2009

The dollar rose 1.7% against the Swiss franc, 1.5% against the euro and 1.1% versus the yen but is little changed otherwise.

In Asian stock markets, many of which opened for the first time this year, a fairly strong rally saw the Nikkei climb 2.1% and bourses advance 3.6% in China, 3.5% in Hong Kong, 6.4% in Thailand, 6.0% in Indonesia, 5.4% in the Philippines and 5.2% in Singapore.

Australian equities slid 0.7%. The British Ftse and German Dax edged 0.2% higher, while the Paris Cac is trading off 0.2%. Futures suggest a drop in U.S. stocks at the open.

The 1.21% yield on 10-year JGB’s is 5.5 basis points above last Tuesday’s five-year low of 1.155%.

Oil prices increased 1.7% to $47.15/barrel on geopolitical tensions in Gaza and between Russia and the Ukraine, but precious metal prices are lower. Gold fell 2.1% to $861.40 per ounce.

Several countries released lower-than-forecast consumer price statistics, which fanned worries about sub-zero inflation ahead.

  • Indonesia’s CPI rose 11.06% in the year to December, down from 11.68% in November and 12.14% in December. The central bank is expected to cut its 9.25% key rate on Wednesday.
  • Italian harmonized consumer prices eased 0.2% last month and to a 12-month pace of 2.3% from 2.7% in November and 3.5% on average in 2008.
  • Spanish consumer price inflation slid to 1.5% year/year in December from 2.4% in November.
  • Taiwan’s CPI fell to a 10-year low of 1.2%.
  • Thai inflation of 0.4% was at a six-year low.
  • Yellen of the Fed and Papademos of the ECB warned of deflationary risks in speeches at the annual American Economic Association meetings.

German Chancellor Merkel reversed her prior opposition to tax cuts. The government moved closer to a EUR 50 billion fiscal stimulus.

President-Elect Obama’s nominee for Commerce Secretary, Bill Richardson (Governor of New Mexico) stepped down amid alleged corruption. Obama’s proposed tax relief is said to exceed $300 billion.

South Korean reserves rose $0.7 billion last month. This first increase in nine months suggests moderating financial strains.

Press reports in Japan claim the government will revised its fiscal 2009 growth forecast from 0.6% to a drop of as much as 1.0%. Japanese motor vehicle sales sank 6.5% last year, worst in over three decades, and by a whopping 22.3% in the year to December.

The Swiss PMI index unexpectedly ticked up to 36.9 from a record low of 35.2 in November.

The British construction-sector PMI reading fell to 29.3 in December from 31.8 in November and has been under 50 for ten straight months.

JP Morgan’s global PMI fell to 33.2 in December from 36.5 in November.

U.S. construction spending and motor vehicle sales will be released later today.


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