New Overnight Developments Abroad: Overseas Share Prices Bleed Further

January 21, 2009

Stocks fell in Asia by 3.5% in India, 3.1% in the Philippines, 2.9% in Hong Kong, 2.3% in South Korea, 2.0% in Japan and 1.7% in Indonesia. Australia’s bourse fell by 1.0%. In Europe, the British Ftse, Paris Cac and German Dax are trading lower by 1.3%, 1.4%, and 0.6%.

The dollar lost 0.7% against the kiwi, 0.6% against the Swiss franc, 0.4% against the euro and 0.3% against the Australian and Canadian dollars, but the buck has risen by 0.7% against sterling and 0.2% against the yen.

Sovereign bond yields fell in Europe, while the ten-year JGB yield firmed a basis point to 1.225% as the Bank of Japan began a two-day policy meeting.

The March oil contract rose 1.5% to $41.46 per barrel. Gold (+0.6%) is higher too, at $860.20 per ounce.

Bank Negara Malaysia cut its key rate three times more than anticipated, a drop of 75 basis points to 2.5%. An earlier cut in November had amounted to just 25 basis points. More monetary relief is likely in the future. In the meantime, Malaysian reserve ratios were also reduced to 2.0% from 3.5%.

German producer prices fell 1.0% in December following a 1.5% monthly decline in November. On-year producer price inflation of 4.3% was down from a peak in September of 8.3%. Average PPI inflation of 6.0% last year was three times higher than the 2.0% pace in 2007.

British labor statistics revealed very soft conditions. Unemployment on a claimant count basis rose for an 11th straight time in December, climbing 77.9K after a gain of 83.1K in November. The jobless rate on such a basis was 3.6%, up from 3.3% in November. Average earnings, a measure of wage pressure, rose only 3.1% in the year to September-November and 2.7% in the year to November alone. Those gains were down from 3.3% and 3.6% in the prior monthly report. Unemployment on the ILO method of calculation was at the highest level since the third quarter of 1997.

British public finances took a big hit in December from the recapitalization of the RBS Bank. The Public Sector Net Cash Requirement of Gbp 44.2 billion was 2-1/2 times bigger than forecast, bringing the nine-month shortfall since April to Gbp 69.023 bln, up 103%. Net borrowings by the public sector amounted to Gbp 14.9 bln last month, up 101% from December 2007.

British M4 advanced 16.6% in the year to December. But gross mortgage lending, according to the Council of Mortgage Lenders, tumbled 47% from December 2007.

Minutes from the Bank of England policy meeting early this month revealed an unexpected 8-1 vote for the 50 basis point cut then decided, as Blanchflower urged his colleagues to cut twice that amount. The meeting ironically discussed not cutting rates at all and instead waiting until new forecasts due in February. The majority was somewhat fearful of the steep drop in sterling, unsure whether such might reflect a market vote of no confidence in its policy.

Comments have been made overnight by Trichet and Stark of the ECB and King and Tucker of the Bank of England. Trichet downplayed talk of deflation and defections from the common currency union and actually said that recent disinflation is welcome. King spoke of the possible future use of “unconventional, unconventional measures.” Tucker predicted a persisting downturn. Stark argued against “aggressive rate moves.”

The Russian rouble remained stable in spite of another mini-devaluation by officials. Officials at Singapore’s central bank argued against any justification for a weaker Singapore dollar. The next South African central bank meeting was moved up a week to February 3-4 in order to avoid conflicting with the unveiling of that country’s budget.

Germany’s economics minister predicted negative growth last quarter of about 1.75% not annualized and said that it appears exports fell in December just as sharply as in November.

Italy’s trade gap widened almost fourfold between November 2007 and November 2008 to EUR 1.078 bln. The deficit in January-November was 46% greater than a year earlier.

U.S. weekly chain store sales and the NAHB index for January will be released later today. A Brazilian interest rate cut is likely to be announced.


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