New Overnight Developments Abroad: U.S. Unveils Details of Toxic Asset Buying Plan

March 23, 2009

Markets reacted well initially to new details of the U.S. plan to purchase bad bank assets.  Treasury Secretary revealed new details in an Op-Ed WSJ column and speaks at 12:45 GMT this morning.  Fed, FDIC and Treasury all to play a role.  Much of the money to come from government.  Some fundamental questions still not resolved, so there is still scope for markets to sour on the plan.  For now, there is less risk aversion, however.

The yen and dollar are weaker.  The yen fell 0.5% against the dollar.  The dollar lost 1.8% against the Australian dollar, 1.6% versus the kiwi, 0.9% against sterling, 0.6% against the euro and Canadian dollar and 0.3% against the Swiss franc.

Oil firmed 1.2% to $52.67 per barrel.  Gold edged 0.1% lower but remains comparatively high at $955.20 per ounce.

Sovereign bond yields are higher in Europe and North America.  The 10-year JGB rose one basis point to 1.27%.

Stocks strengthened sharply. The Nikkei closed 3.4% higher, and the Ftse and Dax are trading 1.7% and 1.4% higher.  In Asia, stock market gains amounted to 4.8% in Hong Kong, 3.3% in Taiwan, 3.4% in Indonesia, 5.1% in India, 4.2% in Singapore, 2.5% in the Philippines and China, and 2.4% in South Korea.

Japan’s Finance Ministry quarterly business survey showed big erosions in confidence to -66.0 in March from -44.5 in December for manufacturers and to -42.6 from -30.5 for non-manufacturers.  The overall index fell to -51.3 from -35.7.  Survey indicates planned investment will plunged 29.4% in Fiscal 2009.

Japanese convenience store sales tumbled 5.4% in the year to February compared to a drop of 2.7% in the year to January.  Department store sales had earlier been reported with a 12-month tumble of 11.5% after dropping 9.1% in the year to January.  February results are in part distorted by the extra leap day in February 2008.

Several economic institutes revised projected German growth in 2009 sharply lower.  IMK looks for a decline of 5.0% in GDP.  Commerzbank is more bearish with an estimated drop of between 6% and 7%.  The RWI Institutes predicts negative growth of 4.3%.  These three forecasters have similar 2010 predictions ranging from +0.2% to +0.5%.

Euroland’s trade balance was in deficit in January.  The seasonally adjusted gap was EUR 5.5 billion, the largest shortfall in at least six months.  The unadjusted deficit was EUR 10.5 billion compared to EUR 1.7 billion in January 2008.  Exports and imports plunged 24.1% and 22.5% from a year earlier.  The trade position swung from a surplus of EUR 11.6 billion in 2007 to a deficit of EUR 38.9 billion in 2008, thanks to a EUR 70.4 billion deterioration in net energy trade.

Czech industrial output plunged 23.3% in the year to January, near twice as much as the on-year drop in January.

Danish consumer confidence slid to -11.7 in March from -11.3 in February.

The trading range for the Vietnamese dong was again widened, a step that facilitates the unit’s depreciation.

ECB President Trichet yet again reiterated dangers associated with zero interest rates, but he also indicated that there is still room to cut rates and that other policy stimulus moves are under consideration.

Governments in Japan and South Korea moved closer to larger fiscal stimulus packages.

Later today, the U.S. releases existing home sale data, and Canada releases its index of leading economic indicators. Hungary and Israel have monetary policy meetings.

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


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