New Overnight Developments Abroad: Lower Bond Yields and Dollar After Fed And BOJ Actions

March 19, 2009

Quantitative easing announced yesterday by the Fed and BOJ lifted stocks but depressed the dollar and bond yields. These trends have extended further.

The dollar is off by 0.7% against the Australian dollar, 0.5% relative to sterling, the yen, and kiwi, 0.4% versus the C-dollar and Swissy, and 0.2% against the euro.

While the Nikkei closed off 0.3%, stocks are trading higher by 1.1% in Germany, 0.9% in France, and 0.6% in Britain.  Equities also closed up 2.1% in China, 1.4% in Indonesia, 2.7% in Pakistan, and 1.0% in Australia.

The ten-year JGB yield dropped 4.5 basis points to a 3-week low of 1.255%. Even larger yield drops have occurred in Europe.

Oil advanced 1.8% to $49.02 per barrel, and gold jumped 4.6% to $929.60 on concerns that quantitative easing will sow long-term inflation.

Japan’s all-industry index fell 1.7% in January. Such was off 8.9% from a year earlier and 4.2% below the 4Q08 average level. In January, monthly drops were posted of 11.3% in industrial production and 0.8% in construction, while services firmed 0.4%. The index for final demand fell 0.8%.

The monthly proxy Tankan indices compiled by Reuters showed a record low reading of minus 78 for manufacturing, down four points from February. The non-manufacturing index rose 5 points to a still-depressed minus 37 from a record low of -39 in February.

Japanese stock and bond transactions generated a much bigger Y 1268 billion outflow last week than the Y 312 bln outflow in the week of March 7.

There were four weak pieces of Australian data.  Motor vehicle sales fell another 3.5% last month and by 18.6% from February 2008.  Residential building approvals slumped 9.9% in the fourth quarter and by 19.5% from the final quarter of 2007.  An industrial trends survey index weakened to 34 this quarter from 40 in 4Q08 due to a big drop in the jobs component.  And imports slid another 3.5% in February from January.  A top official from the central bank, Edey, warned of weakness near term but also said Australia can handle the crisis better than many countries. He did not foreshadow another interest rate cut.

The Bank of Japan issued its March economic assessment, reiterating that “conditions have deteriorated significantly” and “will continue deteriorating for the time being.”  However, the central bank assumes “the pace of decrease will moderate gradually as adjustment pressures on inventories wane.”  Governor Shirakawa repeated that the central bank is not buying JGB’s to fund deficit spending or to influence long-term interest rates.

S&P warned about a deflation risk in Euroland.

Iceland’s central bank cut its benchmark rate to 17% from 18%.  Such high rates were mandated by the IMF last autumn, but inflation subsided a full percentage point to 17.6% last month.

Italian exports and imports tumbled 22.4% and 9.8% in January, and the trade balance swung to a EUR 0.4 billion surplus from a EUR 0.35 deficit in December.

British M4 growth accelerated to 18.8% on year in February from 17.4% in January and 16.2% in December. The Bank of England has begun to ease quantitatively. Gross mortgage lending fell 60%  to an 8-year low during the 12 months to February according to the Council of British Mortgage Lenders.  U.K. public finance data for February showed bigger-than-forecast deficits.  The public sector net cash requirement of Gbp 4.36 billion was at a 14-year high and had an April-February increase of 209%.  Public sector net borrowings of Gbp 8.99 billion were the most since at least 1993 and showed a 10-month cumulative total that of Gbp 75.24 billion, up 227%.  Nonetheless, 10-year Gilt yields are down by 10 basis points.

Sweden’s jobless rate jumped to 8.0% in February from 7.3% in January.

Dutch consumer confidence worsened four points to -30 in March.

Hong Kong exports sank 23.6% in the year to January. WPI inflation in India fell to its lowest level since 1990.

Financial investor sentiment in Switzerland remained very weak at minus 57.1 in March after minus 57.7 in February according to the ZEW index.

Canadian consumer prices rose 0.7% and 0.4% seasonally adjusted last month, more than expected. On-year inflation was at 1.4% (1.9% core).

Markets await U.S. jobless claims, Philly Fed index, and leading economic indicators later today.

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


Comments are closed.