New Overnight Developments Abroad: Softer Dollar Ahead of FOMC Announcement

January 28, 2009

The dollar relinquished another 2.2% against the pound sterling but also dropped 0.9% against the Australian dollar, 0.7% against the Canadian dollar, and 0.6% relative to the euro. The yen lost 0.4%. The new U.S. government is reportedly moving closer to buying up a lot of bad bank assets. The FOMC announcement comes at 19:15 GMT. The Fed funds rate is already centered on 0.125%, so focus is on quantitative easing measures.

The Russian rouble’s controlled depreciation resumed.

Stocks rallied in Asia and Europe. South Korean Kospi up 5.9%. Singapore +4.8%. India +2.8%. Pakistan +3.4%. Japanese Nikkei +0.6%. Australia +1.5%. South Africa +1.4%. German Dax is trading 2.3% higher, and the Paris Cac shows a gain of 2.3%. Italy up 2.2%. British Ftse +1.7%.

Sovereign bond yields steady in Japan (10-year JGB at 1.265%) but down in Europe. Oil is flat at $41.54/barrel. Gold is off 1.3% at $887.60/ounce. Euribor rates continued to edge downward, with the 3-month now at 2.115%.

Japanese automakers reported big December-over-December declines in production. The Shoko Chukin index of small to mid-sized activity worsened for a fifth straight month to a lower-than-anticipated 24.8 in January from 29.4 in December.

The Reserve Bank of New Zealand is expected to cut its cash rate at least by another 100 basis points today. Such is at 5.0% now after four reductions totaling 325 basis points since last July.

The Korean rate cut to 3% from 4% last month was decided by a 6-0 vote, Bank of Korea minutes revealed.

A 0.3% quarterly drop in Australian consumer prices in 4Q08 trimmed on-year inflation to 3.7% from 5.0%. Gasoline prices fell 18.2% from 4Q07. Core CPI went up 0.75% from 3Q versus 1.25% in the prior quarter and by 4.35% from 4Q07. PPI and CPI data show that upstream costs are not getting passed on. Skilled job vacancies fell 45% in the year to January. The Reserve Bank of Australia is expected to slice its cash rate on February 3rd from 4.25% to 3.25-3.5%.

German consumer confidence was higher than projected in February at 2.2 after an upwardly revised same 2.2 score in January. Reduced inflation is having a positive effect. German consumer prices in January fell monthly by 0.6% in North Rhine Westphalia, 0.5% in Brandenburg and Saxony, and 0.3% in Bavaria and Hesse. Much of this drop was seasonal, as package tour costs settled back. On-year inflation is running at 1% or marginally above.

In Italy, where better-than-expected consumer sentiment was reported yesterday, business confidence slid to a record low in January of 65.5 from 66.8 in December.

Spanish GDP fell 1.1% last quarter and by 0.8% from 4Q07, hit by a collapsing construction sector and financial market strains. GDP was 0.8% lower than a year earlier after posting a 0.9% rise in the year to 3Q08. Growth in full-2008 slowed to 1.1%.

Switzerland’s index of leading economic indicators sank to a record low in January of -0.87 from -0.45. The president of the Swiss central bank observed a lack of factors pointing to a recovery even in 2010.

Swedish retail sales slid 0.1% m/m and by 1.1% year/year in December. Expected inflation in Sweden dropped very steeply since October, a survey showed.

Norwegian business confidence had a record low reading of -23 last quarter after -7 in the third quarter. Unemployment climbed to 2.9% in 4Q.

South African consumer price inflation slowed to 9.5% in December from 11.8% in November and to 10.3% core from 12.1%. South African interest rates are expected to be cut next week.

Icelandic consumer price inflation climbed to 18.6% in January from 18.1%, reflecting substantial depreciation of the Icelandic crown.

French consumer confidence was better than forecast at -41 in January after -44 in December but a corporate survey found expectations of diminishing demand for products in the current quarter.

At the annual World Economic Forum in Davos, the escalated call for yuan appreciation by the new U.S. administration has been criticized.

Serbia’s dinar hit a record low against the euro and required intervention support. Saudi central bank officials said their economy is not in recession.

Copyright 2009 Larry Greenberg.  All rights reserved. No secondary distribution without express permission.


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