New Overnight Developments Abroad: Australian and New Zealand Dollars Falter

January 29, 2009

The U.S. dollar rose 1.2% against both the Australian and New Zealand dollars. The Reserve Bank of New Zealand cut its cash rate by a greater-than-expected 150 basis points to 3.5% following reductions of 100 bps on November 23rd and 150 bps on December 4th.

The greenback is mixed otherwise, sliding 0.6% against the yen, 0.2% relative to sterling, and 0.1% against the Swissy but rising 0.5% against the euro and 0.4% against the Canadian dollar.

Share prices rose in Asia: Hong Kong +4.6%, Japan +1.8%, South Korea and Australia +0.9%. However, stocks have dropped in Europe by 1.2% in Germany and France and by 1.9% in Britain. Futures trading suggests a decline at the U.S. open.

The ten-year JGB yields edged up another basis point to 1.28%. Bund and Gilt yields are also firmer.

Oil lost 4.1% to $41.50 per barrel, and gold fell 1.4% to $875.60 per ounce. Despite all the global economic and financial turmoil resulting in unprecedented easing efforts by central banks around the world, gold remains 15% below its March 2008 peak in what has become a major surprise of this crisis.

Japanese total retail sales fell by 2.0% on month and by 2.7% in the year to December, their largest drop since February 2005. Large-store retail sales fell 6.3% y/y, led by a 14.1% plunge in clothing sales.

A panel in Japan that identifies business cycles said the recession began in October 2007.

Japanese stock and bond transactions generated a Y 614 billion outflow last week after a Y 445 billion outflow in the prior week.

Germany’s labor market is deteriorating more rapidly after a long trend of improvement. Unemployment rose 56K seasonally adjusted (versus 33K in Dec and twice as much as expected) and by 387K unadjusted in January. The jobless rate increased to 7.8% from 7.7% in December and 7.6% in November. Jobs rose 0.9% in the year to December and 1.1% y/y in 4Q08 versus a gain of 1.7% in the year to 4Q07.

Euroland money and credit growth slowed more sharply than expected last month, which is likely to make ECB officials more predisposed to cutting interest rates further. M3 rose 7.3% in the year to December and 7.9% y/y in 4Q08. On-year lending growth slowed to 5.8%, down from 7.1% in November and 8.5% in September. Private-sector credit growth was 6.8%, down from 10.1% in the year to September. Mortgage lending advanced only 1.7% between December 2007 and December 2008. The region is gripped by a credit crunch.

Polish GDP growth slowed to 4.8% in 2008 from 6.7% the year before.

South African producer prices fell 1.1% on month in December and showed a 12-month pace of 11.0%, down from 12.6% and lowest since January 2008.

The central bank of the Philippines became the second monetary authority today to cut interest rates following New Zealand with a reduction of 50 basis points to 5.0% in its key borrowing rate. There also was a reduction of 50 basis points on December 18th.

Iceland retained a draconian 18% central bank rate, which has been mandated by the IMF.

Euroland sentiment measures fell to series lows. Overall sentiment was 68.9 in January, down from 70.4 in December and 78.4 in November. The business climate gauge worsened not quite as much as expected to -3.16 from -3.09. Consumer confidence dipped a point to -31. Industrial sentiment also dipped a point to -34, and service sector sentiment had the biggest deterioration, a 5-point slide to -22.

Monthly retail PMIs for Euroland calculated by Bloomberg remained below 50, connoting declines. The euro area index was at 44.0 after 41.4 in December. Germany’s index fell 0.6 points to 41.7, but the French and Italian indices recovered to 50.5 and 38.6, respectively.

Norwegian unemployment jumped to 2.6% in January from 2.0% at end-2008.

New Zealand household borrowing remains very sluggish, edging up only 0.2% in December.

In Britain, the Nationwide house price index fell 1.3% in January and posted its largest on-year drop since the series began in 1991 of 16.6% after falling 15.9% in the year to December. Another British house price measure from the Land Registry posted a 13.5% decline in the year to December.

Russia’s currency suffered it greatest two-day drop against the dollar, 5.2%, since the beginning of 1998.

Investors await U.S. jobless claims and new house sales data due later today.

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


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