New Overnight Developments: Lessening Risk Aversion

March 26, 2009

Market developments overnight are consistent with receding risk aversion. Commodity-sensitive currencies, stocks, and bond yields rose. The yen fell.

The dollar lost 1.3% against the kiwi, 0.7% relative to the Australian dollar, and 0.3% versus the Canadian dollar. It firmed 0.6% against the yen, 0.5% against the Swissy, and 0.1% against the euro but dipped 0.1% relative to the pound.

Japan’s Nikkei advanced 1.8%. Elsewhere in Asia, equities climbed 4.0% in Singapore, 3.6% in Hong Kong, 3.3% in China, 3.1% in Vietnam, 2.8% in India, 2.5% in the Philippines, and 1.2% in South Korea.  Australia’s bourse advance 1.0%.  In Europe, however, the Dax is up only 0.3%, and both the Cac40 and Ftse are down by around that amount.

The 10-year JGB yield firmed 2 basis points to 1.32%.  Gilt and bund yields are also higher.  There’s a lot of fear about excessive government borrowings raising long-term rates, a topic that will be aired at the April 2nd G-20 London summit.

Oil firmed 1.2% to $53.40 per barrel, and gold edged 0.1% higher to $939.10 per ounce.

Taiwan’s central bank did not cut its 1.25% benchmark interest rate, breaking a string of seven cuts in a row.  The central bank of the Czech Republic meets later today and similarly may leave rates steady.  Like their counterparts in Hungary, who left rates flat earlier this week, Czech monetary officials have a vulnerable currency that has to be considered.

The Reserve Bank of Australia released a financial stability review, finding its housing market to be comparatively healthy.

Officials at the Reserve Bank of New Zealand denied rumors of an emergency meeting following a near-percentage point jump in 5-year note rates earlier this week.  New Zealand’s current account deficit widened 11.8% to NZ$ 16.07 billion (8.9% of GDP) in 2008.

Japanese corporate service prices posted their first monthly increase, albeit just 0.2%, in eight months in February. But the 12-month comparison showed a somewhat bigger drop of 2.6% after declining 2.4% in the year to January.  Japanese stock and bond transactions generated a Y 365 billion outflow last week, down from a Y 1.21 trillion outflow in the week to March 14th.

Noyer, a member of the ECB Governing Council, warned about inflationary effects from rising food costs.

M3 in the euro area grew 5.9% in the year to February, down from 6.0% in the year to January.  The dip was less than expected, but private loans continued to slow rapidly, gaining 4.2% on-year after 5.0% in the year to January and 5.8% in the year to December.  Mortgage lending went up only 0.5%, while corporate loans slowed further to growth of 7.6% from 8.8% in January and 9.5% in December.

South African producer price inflation decelerated to 7.3% in February from 9.2% in January.

Italian business sentiment dropped 3.4 points in March to 59.8, a record low.  Such stood at 76.3 last October.  Italian exports to outside the EU fell 21.9% in the year to February, but imports dropped even faster (24.0%).

Sterling got whacked after news that British retail sales fell 1.9% in February while rising just 0.4% from a year earlier.  Bad weather was blamed partly. Real retail sales still rose a surprisingly resilient 3.0% in the year to December-February.

French consumer confidence punched in at -43 in March, same as February’s reading.  Such appears to have stabilized at a very depressed level.

German consumer confidence posted a drop for the first time in seven months, falling to a forecast of 2.4 in April from 2.5 in March.

Denmark’s jobless rate climbed to 2.5% in February from 2.3% in January. It has risen five straight times.

Dutch GDP fell 1.0% last quarter, revised from a preliminary reading of minus 0.9%. GDP fell 0.6% compared to the final quarter of 2007.

Geithner finally said the dollar mantra that the Obama government wants a strong dollar.  The backdrop for this admission is growing concern by big holders of foreign debt about the value of such holdings should the dollar collapse.  Geithner also seeks new regulations for big hedge funds.

The Canadian parliamentary budget committee office expects GDP to fall 8.5% at a seasonally adjusted annual rate this quarter.

Bank of China Governor Zhou believes that his country’s slowdown is losing momentum.

The U.S. releases weekly jobless claims, the Kansas City Fed manufacturing index, and the final revision of 4Q08 GDP today. Several Fed officials speak.

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


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