New Overnight Developments Abroad: Stocks Rally Despite Some Awful Data

January 22, 2009

Stocks rose 1.9% in Japan, 1.6% in Thailand, 1.3% in the Philippines, and 1.3% in Australia.  They are trading higher by 1.5% in France and Britain and by 1.3% in Germany. The inspiration for these gains came from yesterday’s better tone in U.S. shares and despite more evidence of profound economic weakness.

The dollar has climbed 1.5% against sterling, 1.3% versus the New Zealand and Australian dollars, 0.5% against the euro and 0.4% each against the Swiss franc and Canadian dollar. The yen is the strongest major currency, touching a 13-year high of 87.1/$ and a 7-year high of 112.08 per euro. Japanese Ministry of Finance and Bank of Japan officials made indirect hints of possible intervention. Market participants doubt it will come to that.

Sovereign bond yields are higher. Oil rose 2.3% to $44.54 per barrel. Gold is steady at $850 per ounce.

Japanese exports plunged by a greater-than-forecast 35% in the year to December and fell another 10.7% in seasonally adjusted terms from November. The customs clearance trade balance posted a deficit of Y 321 bn last month and a surplus in 2008 of Y 2.158 trillion, down 80% from Y 10.796 tln in 2007. Most of the drop in exports occurred in volumes, but prices fell too. Japanese supermarket sales fell 2.8% in the year to December. Earlier this week a 9.4% plunge in department store sales was reported.

The Reuters Tankan index, a monthly proxy for the BOJ series of business sentiment, worsened to -76 in January for manufacturers from -64 in December. The non-manufacturing index fell to -31 from -26.

The Bank of Japan as expected left its overnight money target at 0.1% but revealed terms for it to buy commercial paper and asset-backed CP including the acceptance of real estate investment trusts as collateral. Suda dissented on this decision. The central bank also moved closer to buying corporate bonds. Revised price and growth forecasts portray deflation in both fiscal 2009 (with core CPI centered on -1.1%) and fiscal 2010 (-0.4%) plus a 2.0% drop of real GDP next fiscal year. Corporate goods prices are projected to drop 6.4% in fiscal 2009.

Chinese real GDP rose only 6.8% in the year to 4Q08 and by 9.0% in 2008, down from 13.0% in 2007. Producer prices fell 1.1% in the year to December and averaged a rise of 6.9% in 2008 as a whole. Industrial production recorded a reduced on-year increase of 5.4% in 4Q08, while retail sales went up 20.8% y/y. Urban fixed asset investment climbed 26.1% in 2008. Per capita income grew 8.4% in the year to 4Q08.

South Korean real GDP plunged 5.6% last quarter and by 3.4% from 4Q07, virtually assuring a recession for the first time in a little more than a decade. The Bank of Korea expanded the range of collateral it will accept.

Industrial orders in Euroland dropped 4.5% in November on top of losses of 5.4% in September and 5.7% in October. October-November together showed an annualized decline from 3Q08 of about 40%. Orders in November were 26.1% lower than a year before, led by a 46.4% plunge in transportation equipment. Germany, France, Italy, Spain, and the Netherlands experienced bigger declines in orders than Euroland as a whole in November.

In Britain, the CBI monthly survey of industrial trends produced an orders index of -48, worst since July 1992, and below expectations of -38 and a -35 reading in December. Expected output had a score of -43, lowest since September 1980, and expected inflation dropped to -12 from zero in both November and December. Paul Tucker has been promoted to Bank of England Deputy Governor. British car output fell 47.5% in the year to December.

French Finance Minister Lagarde complained that not enough is being done by the Bank of England to support sterling. French consumer spending sank 0.9% on month in December and by 1.7% from end-2007. Drops of 0.2% m/m and 0.6% y/y had been anticipated. Bank of France officials said that a temporary drop of on-year CPI inflation later this year will constitute disinflation, not deflation, and be related largely to base effects.

The monthly ECB Bulletin was released, calling medium-term inflation risks broadly balanced.

The central bank in Serbia slashed its two-week repo rate by 125 basis points to 16.5% in spite of a 21% drop of the dinar since October.

Australian motor vehicle sales rose 1.8% in December but were still 15.7% lower than a year earlier.

The Swiss ZEW index of investor sentiment rose in January but was still extraordinarily depressed at -66.7 after a reading of -76.2 in December.

Russian reserves fell $30.3 billion last week alone and have been eroded by more than a third since August.

U.S. jobless claims and housing starts data get released at 13:30 GMT.

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