New Overnight Developments Abroad: Euro Continues Sharp Decline

January 6, 2009

The dollar advanced another 2.0% against the euro and shows gains of 5.2% since Friday and 10.2% since December 18th.

The dollar also gained 1.1% against the Swissy, 0.9% versus the yen, 0.7% against sterling, and 0.5% against the Australian and New Zealand dollars. The greenback is 0.1% softer against the Canadian dollar.

Investors expect central banks in Britain, South Korea, and Indonesia to cut rates later this week. The ECB doesn’t meet until January 15 but is expected to cut rates then.

Stocks in Asia rose 3.2% in China, 2.7% in Pakistan, 1.8% in South Korea and 0.4% in Japan. They fell by 1.2% in Thailand, 0.6% in Singapore, 0.4% in Hong Kong and 0.3% in the Philippines. The Australian and New Zealand bourses advanced around 1.5%. In Europe, the German Dax, Paris Cac and British Ftse are up by 1.5%, 1.2%, and 1.1%.

Sovereign bond yield are broadly higher, including a 5-basis point rise in the 10-year JGB to 1.26%. Such bottomed at a 5-year low of 1.155% on December 30.

Oil is 1.9% higher and near to $50 on continuing Mid-East combat, but gold settled back 1.9% to $841.10/ounce.

Final Euroland PMI-services and composite indices for December were released. The services reading was revised up a tenth to 42.1, still below November’s 42.5 reading and connoting sharp contraction in the fourth quarter. The composite score of 38.2 compared to a flash reading of 38.3 and November’s 38.9.  Service-sector reading were 46.6 in Germany (down from 45.1 in November), 40.6 in France (46.2), 40.3 in Italy (39.5), and 32.1 in Spain (28.2).

Euroland’s Flash consumer price rate in December was 1.6%, below market expectations and 12-month increases of 2.1% in November and 4.0% in June and July. 1.6% constitutes the lowest reading since October 2006, is below target, and points to a likely ECB rate cut of at least 50 basis points later this month.

Britain’s service-sector PMI edged up a tenth in December to 40.2. The Nationwide index of U.K. house price inflation plunged another 2.5% last month and showed a record 12-month drop of 15.9% after falling 13.9% in the year to November. The Nationwide gauge of consumer sentiment slid to 47 in December from 52 in November and 55 in October.

Australia’s PMI-services fell to 42.1 in December from 42.5 in November and 53.1 at the end of 2007. Russia’s PMI-services sank to a record low of 36.4 from 37.2 in November. Norway’s PMI of 40.7 remained steady but well below the 50 expansion-or-contraction line.

Japan’s monetary base accelerated to on-year growth of 1.7% in 4Q08 from no change in the year to 3Q08 and -1.1% in the year to 2Q08.

Australian motor vehicle sales fell just 11.3% in the year to December, comparatively better than earlier news of drops of 36% in U.S. auto sales and 21% in Canadian auto sales. Toyota will shut its plants for 11 days this month, 6 days in February, and 5 days in March in hopes of running down inventories.

A Chinese government report warned of social unrest as unemployment climbs.

South Korea and Chile announced fiscal stimulus packages. Russia cut natural gas supplies to Europe.

Brazilian industrial production plunged 6.2% in the year to November.

Consumer prices in the Philippines slowed to 8.0% y/y in December from 9.9% in November. The drop was projected to be only half that much. Zambia’s CPI inflation, on the other hand, rose to 16.6% in December from 15.3% in November and 8.9% a year earlier. Producer prices in Hungary rose 7.1% in the year to November, down from 7.8% in October.

Euribor rates continued to ease. The 3-month rate is now below 2.80%.

French consumer confidence slid to -44 in December from -43 in November. The reading was as expected.


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