New Overnight Developments Abroad: Better Market Tone Than Monday

April 21, 2009

European stocks have stabilized, and Monday’s sharp FX moves reversed partially. Gilt and bund yields firmed 4 bps and 2 bps. JGB yield settled back 2 bps to 1.46%, as 20-year auction drew decent support.  Oil and gold have steadied at $45.92/barrel. TIME magazine says most banks are likely to pass stress tests.

The Dax firmed 0.3% and Ftse dipped just 0.1%.  In the Pacific Rim, however, the Nikkei lost 2.4%, and stocks fell 3.0% in Hong Kong, 2.0% in Indonesia, 2.4% in Australia, 1.9% in Vietnam, and 1.8% in the Philippines.  The three-month euribor rate is unchanged at 1.405%.

The dollar recouped 0.4% against the yen and gave back 0.9% to the kiwi, 0.8% to the Australian dollar, 0.3% against sterling and the euro, 0.2% against the Canadian dollar and 0.1% versus the Swiss franc.

The Swedish Riksbank cut its repo rate by 50 basis points, not 75 bps as many anticipated, to 0.5%.  There was one dissenting vote favoring a 75-bp reduction, and the door was left open for another small cut and the future purchase of bonds to stimulate lending.

The Reserve Bank of India unexpectedly reduced its repo and reverse repo rates by 25 basis points each to 4.75% and a record low of 3.25%.  Cuts have been made in six straight months.  Projected growth was revised down.

Minutes from this month’s Reserve Bank of Australia policy meeting projected negative growth in both the first quarter and full-2009, and Governor Stevens conceded for the first time that the economy is in recession.  More rate reductions seem likely.

Analysts are split over whether the Bank of Canada eases further today.  I think it will.

German producer prices fell by another 0.7% in March, swinging the 12-month change into the red by 0.5%. Producer prices advanced 5.5% on average in 2008 and crested at 8.2% in the year to July 2008.  Non-energy producer prices fell 0.5% in March and by 1.4% from a year earlier.

The German ZEW expectations index of investor sentiment improved much more than anticipated to +13 in April from -3.5 in March and -45.2 at the end of 2008.  This was the first black-ink reading since July 2007, just before the global financial market crisis started.  The ZEW current conditions index slid further to negative 91.6 from minus 89.4 and minus 64.5 at end-2008.  Euroland’s ZEW expectations index swung to +11.8 from -6.5, while its current conditions index worsened by 2.3 points to -93.0.

British consumer prices firmed 0.2% in March, cutting the on-year change to 2.9%, lowest since March 2008, from 3.2% in February.  Retail prices were unchanged on the month and down 0.4% from March 2008, their lowest pace since 1960.  Disinflation last month was led by gas, transportation, and food.

A new Bank of England survey of bank lending found some improvement in March, but such was concentrated on the corporate side.  Consumer loan demand remains very depressed.

Italy’s trade deficit widened 86% from a year earlier in February, as exports sank 25.3% and imports plunged nearly as fast (23.7%).

The Bank of Canada rate announcement will be made at 13:00 GMT.  Canada also reports wholesale sales.  Still awaiting U.S. weekly chain store sales and Belgian monthly consumer confidence.  But today’s main focus will be on banking shares and the ebb and flow of confidence in the health of the banking system.  Without such, sustained economic recovery is not possible.  Even with a presumed fix, a complete economic recovery may not be seen (see Japan’s example).

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


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