New Overnight Developments Abroad: Several Governments Offer More Stimulus

February 3, 2009

The dollar is 0.4% higher against sterling and the Canadian dollar.  It also shows rises of 0.3% against the kiwi and 0.1% versus the euro and yen. The dollar fell 0.8% against the Australian dollar, where a A$ 42 billion fiscal package was unveiled and interest rates were cut by 100 basis points. The Swissy is up 0.1%.

Asian stocks closed mixed, and European shares are lower.  The Nikkei lost another 0.6% despite the BOJ’s announcement that it will revive a plan to buy bank shares. The Y 1 trillion to be purchased are smaller in size than a similar plan earlier this decade and was deemed too little to avert a severe and prolonged recession.  Elsewhere in Asia, stocks gained 2.5% in China, 1.4% in South Korea, 0.7% in Thailand, and 0.4% in Singapore, but such fell by 0.7% in Hong Kong, 0.5% in Indonesia, 3.0% in Vietnam, 0.4% in the Philippines and 0.5% in Malaysia. In Europe, the Dax, Cac40, and Ftse are trading down 0.8%, 0.7%, and 0.6%.

The 10-year JGB yield touched a 2-1/2 month high of 1.31% but settled back to 1.295%.

Oil (+0.3%) and gold (-0.4%) are comparatively steady at $40.51 per barrel and $903.30/ounce and hovering near the key $40 and $900 levels.

The Australian cash rate was cut by 100 basis points to 3.25%, lowest in 45 years. Since September, there have been three cuts by 100 basis points, one of 75 bps and an initial dip of 25 bps.  Australia’s government unveiled a second and bigger fiscal stimulus, totaling A$ 42 bin, meant to avert a recession. Stimulus amounts to 2% of GDP this year and 1.3% next year, but projected growth has been revised down to 1.0% in FY08/09 and 0.75% in FY09/10. A recession still looks likely.

Australian December trade data were also released. Exports fell 3.1% on month, and imports dropped 1.7%. The surplus narrowed 40% from November and was considerably less than forecast.

Producer prices in Euroland recorded a third straight big decline, falling 1.3% in December following -2.0% in November and -0.8% in October. The PPI slumped 10.9% at an annualized rate in the fourth quarter. On-year PPI inflation slowed from 9.2% in July to 1.8% in December. Energy PPI inflation decelerated from 25.0% to 2.1%, and the 12-month change of all other producer prices (especially for intermediate goods) dropped to 1.6% from 4.4%. It is getting harder for ECB officials to be dismissive of the danger of deflation. Trichet holds his monthly press conference at 13:30 GMT on Thursday.

German real retail sales failed to turn up in December as hoped but instead eased another 0.2%. Such fell 2.0% at an annualized rate in 4Q08 (and by 3.2% saar if autos are included).  Retail sales slid 0.3% between December 2007 and December 2008 and posted a 0.4% drop in 2008 after declining 2.3% in 2007.

Japanese wage earnings posted their largest 12-month drop (1.4%) in nearly 16 years in December, led by a 11.2% slide in overtime pay, most since the year to April 1993.

The BOJ’s decision to buy Japanese stocks was prompted by severe losses reported by some large banks.  BOJ Governor Shirakawa said slumping stock prices pose the greatest threat to the local financial system.

Spanish unemployment went up 200K last month, the greatest monthly advance since 1996. The REF Institute is predicting that Italian GDP will drop 2.5% this year and by 0.1% in 2010. German new car registrations fell 14% last month. Norway’s PMI remained at 40.8 in January, connoting continuing contraction.

More bad news came out of South Africa where new motor vehicle sales dived 35.4% in the year to January. The South African central bank is expected to cut its benchmark rate later this week more sharply than its first easing move of 50 basis points to 11.5% on December 11th.

Japan’s monetary base accelerated to a 12-month rise of 3.9% in January from 1.8% in December and 0.1% in full 2008. Following a rate cut to 0.1% in December, bank current balances with the BOJ recorded a 41.8% on-year jump in January versus a 14.7% rise in the year to December.

China’s government allocated $19 billion to be spent in the second chunk of its 4 trillion yuan stimulus.

Russian GDP slowed to a six-year low of 5.6% in 2008 from 8.1% in 2007. Russia is now in recession.

The hope in the U.S. is that a stimulus of around $900 billion might be ready for signing at the end of the week. U.S. data scheduled today include chain store sales, pending home sales, and domestic auto sales.


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