New Overnight Developments Abroad: European Stocks Rallying

January 19, 2009

The German Dax, British Ftse, and Paris Cac are trading 1.6%, 1.7%, and 1.4% higher.  Asian bourses closed mixed earlier, with stocks dwon by 1.4% in the Philippines, 1.0% in Indonesia, and 0.7% in Malaysia but up 1.4% in South Korea, 1.0% in Singapore, 1.1% in China, and 0.3% in Japan. Australian shares rose 1.1%.

U.S. markets will be closed today to honor Martin Luther King’s birthday. The presidential inaugural is tomorrow.

Sovereign bond yields advanced in Japan and Europe.

Oil slid 2.2% to $35.72/barrel on a cease-fire in Gaza and lessening tensions over Russian natural gas supplies to Europe. Gold is steady at $841.80/ounce.

The dollar shows modest gains of 0.4% against the euro and sterling and of 0.3% versus the Swiss franc. The greenback is down 0.4% against the Australian dollar, 0.2% versus the Canadian dollar and -0.1% relative to the yen.

In Hesse regional elections, the pro-business Free Democrats were the biggest winners, more than doubling that party’s voter share to 16%. The Social Democrats suffered the heaviest losses, while the Greens also picked up support. The results point to the reinstatement of a center-right CDU-FDP government on a national level after elections scheduled for September 27th. The current national government is a grand coalition of the CDU on the right and the SPD from the left.

The British Rightmove house price index slid 1.9% in January and posted a record 7.3% on-year decline in January after dropping 6.3% in the year to December.

Britain’s government unveiled its second major bank rescue package, featuring a increase in the public sector’s ownership stake in RBS, measures to guarantee more toxic loans, and the creation of a new facility that gives the Bank of England the wherewithal to ease quantitatively.

A think tank, the ITEM Club, projects negative British growth of up to 2.9% this year, worst since 1946 with a further 16% drop in home prices.

Larry Summers, one of Obama’s top economic advisors, said he does not think unemployment will exceed 10%.

Bank of Japan Governor Shirakawa suggested that the ill-effects of a policy of zero interest rates for an extended period exceed the benefits.

The EU Commission released new projections with growth of -1.9% this year followed by +0.4% in 2010. The CPI in 2009 is seen rising only 1.0%.

Two members of the ECB Governing Council expressed reservations against cutting interest rates much further.

Japanese department store sales fell 9.4% in the year to December, most since the year to March 1998. Tokyo department store sales tumbled 10.4% y/y after a decline of 6.4% in the year to November. National and Tokyo department store sales posted drops of 4.3% and 4.1% in 2008 as a whole.

Japanese industrial production was revised to show a monthly decline of 8.5% in November after -3.1% in October. Production in those two months was 7.7% lower than the third-quarter average. Output fell 16.6% in the year to November after a dip of just 1.4% in the year to 3Q. Capacity usage plunged 9.4% in the latest month and by 18.1% from November 2007.

In Australia, imports fell 3.8% and by 2.0% seasonally adjusted between November and December. The TD-MI inflation gauge showed a 12-month rise of just 2.2%, lowest in 43 months. The data point to a further drop in the Reserve Bank’s benchmark rate at the next scheduled meeting on February 3rd. The rate is currently 4.25%, down from a cyclical peak of 7.25%. Analysts look for such to be around 3.5% after February 3rd.

The Russian rouble underwent its sixth mini-devaluation of 2009, a drop of 1.3% against its target basket. The currency now lies below its 1998 trough.

Two middle-eastern central banks cut interest rates. In Saudi Arabia, the repo rate was reduced 50 basis points to 2.0%, and the reverse repo fell by 75 bps to 0.75%. The UAE central bank slashed its repo rate to 1.0% from 1.5%. Hungary’s central bank is likely to ease policy later today.

The Hong Kong jobless rate edged up further to 4.1% in 4Q08 from 3.8% in the three months to November.

The top economic policy advisors in South Korea have been changed. Chinese Premier Wen urged more vigilance to support growth.


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