New Overnight Developments Abroad: BOJ and RBA Implement Only Small Policy Changes

April 7, 2009

Currency movements overnight reflect stronger risk aversion.  The dollar is 0.9% weaker against the yen but has advanced 2.2% against the kiwi, 1.1% against the euro, 0.9% relative to sterling, 0.8% against the Swiss franc, 0.7% against the Australian dollar and 0.6% against the Canadian dollar.

Stock markets are lower in France (1.1%), Britain (also by 1.1%), Germany (0.9%), Australia (1.3%), Indonesia (1.7%), Singapore (2.5%) and Japan (0.3%). George Soros called previous run-up of stocks since early March a bear market rally.

The yield on 10-year JGB’s slid back to 1.435% from yesterday’s 3+ month high of 1.475%.  Gilt yields advanced after the 10-year auction.

Oil fell 1.5% to $50.30 per barrel, and gold firmed 1.0% to $881 per ounce in a further sign that risk aversion may be making a comeback.

The Australian cash rate was cut just 25 basis points to 3.0%.  Market expectations had been split between 25 bps and 50 bps.

The Bank of Japan expanded the range of acceptable collateral to include muni bonds but neither cut interest rates nor raised its outright monthly JGB purchases further.  Officials admitted that economic conditions have deteriorated significantly but kept the view that recovery would begin after 3Q09.

Revised Euroland GDP figures weighed on the euro.  The data for 4Q08 showed a record and deeper 1.6% non-annualized drop in GDP, with negative contributions of 0.9 percentage points (ppts) each from investment and net exports and 0.2 ppts from personal consumption. On-year growth was revised to negative 1.5% from negative 1.3%.

The British Chamber of Commerce quarterly survey produced a better reading for services of -23 last quarter versus -31 in 4Q08 but a worse factory sector score of minus 55 (worst since at least 1989) after minus 38.  British industrial production fell 1.0% in February, a little less than forecast, and by 12.5% from February 2008, most since at least 1968.  Factory output dropped 0.9% and by 13.8% on year, most since the start of 1981.

Italian hourly wage inflation slowed sharply to 3.5% in February from 4.3% in January.  Confirmed earthquake deaths exceed 200.

Norwegian factory output dipped only 0.1% in February, much less than assumed, but dropped 5.1% on year.

Sources in China claim that yuan lending in March shot up by yuan 1.87 trillion last month, giving a first-quarter total increase of 4.56 trillion yuan, nearly meeting the full-2009 goal of 5 trillion yuan.

Business sentiment in New Zealand hit a 35-year low last quarter.

CPI inflation in the Philippines slowed sharply to 6.4% y/y last month from 7.3% in February.  Core inflation also decelerated.

South African officials hinted that GDP growth in 1Q09 was probably negative for a second straight quarter.  Nigeria’s interest rate decision is due later today.

Another light schedule of U.S. data releases is on tap today, just consumer credit and weekly chain store sales.  Trading volume is apt to be increasingly influenced by the approaching Good Friday and Easter holidays.

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


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