New Overnight Developments Abroad: Yen and Dollar Sharply Higher, Stocks Are Lower

January 23, 2009

The dollar is off 0.4% against the yen but has climbed 2.2% against sterling, 1.8% against the Ozzie dollar, and  1.6% versus the euro and kiwi.  The Canadian dollar fell 0.6%. Oil prices are 1.6% lower at $42.96/barrel, whereas gold advanced 1.7% to $873.20 per ounce.

Stocks are having another horrific day, with drops of 3.8% in Japan to a two-month low, 4.1% in Australia, 2.1% in South Korea, 1.8% in Pakistan, 2.4% in Germany, 2.1% in France, and 1.6% in Great Britain.

The five-year JGB sank 1.5 basis points to its lowest yield since September 2005, but the ten-year yield is steady at 1.23%.

British real GDP plunged 1.5% (not annualized) last quarter, with drops of 3.9% in industrial production, 1.1% in construction, 2.4% in services, and 0.5% in public administration. GDP was 1.8% lower than in the final quarter of 2007. These figures were worse than expected. Retail sales in December, on the other hand, surprised on the upside with gains of 1.6% m/m and 4.0% from a year before. Retail sales were 2.4% greater in 4Q08 than 4Q07. The data, however, were distorted by special factors and not indicative of underlying trends.

The central bank in Vietnam is cutting its base rate to 7.0% from 8.5% effective February 1st. The rate had been at 14% from mid-June to mid-October last year.

Flash January PMI readings for Euroland, Germany, and France were released. Euroland’s composite score firmed to 38.5 from 38.2 in December, with gains of 0.6 points to 34.5 in manufacturing and 0.4 to 42.5 in services. Germany’s composite score of 38.0 was 1.5 points worse than in December, while the French composite reading improved by 3.2 points to 40.8. Scores well below 50 suggest a deep recession, but improvement from late 2008 gives a hint of stabilization.

The French business sentiment index stayed at a record low of 73 in January, down from 79 in November and 87 in October.

A former governor of the Reserve Bank of Australia said the economy is in a deep and long recession and projected an eventual reduction of the central bank cash rate to below 2%. Australian equity prices fell to a five-year low on the remark.

Professor Roubini of NYU said China is in a recession that will hammer world stocks further in 2009.  Chinese industrial production rose 5.7% in the year to December, down from 14.7% in the year to July and 16.3% y/y in 1H08. Taiwanese export orders and industrial output posted on-year declines of 33% and 32.4% in December.

Italian retail sales slid 0.2% m/m and 3.0% y/y in November. Another ECB official (Smaghi) expressed reservations against cutting rates too low.

German construction orders sank 17.4% in the year to November, much worse than a drop of 3.8% in Jan-November from the same months of 2007.

Russia’s rouble fell 1.5% against the dollar.

The Bank of Japan downgraded its overall economic assessment to “worsening rapidly.” Business investment, industrial production, and housing were also downgraded. Financial conditions were called tighter, and the response of the economy to low interest rates was said to be diminishing.

Canadian on-year consumer price inflation fell to 1.2% in December, a 23-month low, from 2.0% in November. Core inflation stayed at 2.4%, and inflation excluding gasoline slid to 2.6% from 2.8%.

All rights reserved. No secondary distribution without express permission.


Comments are closed.