New Overnight Developments Abroad: Equity Rally Extended

April 30, 2009

Stocks rose 3.9% in Japan, 3.8% in Hong Kong and Singapore, 4.8% in Indonesia, 3.7% in India, 2.4% in Malaysia, 2.1% in The Philippines, and 2.3% in Australia.  In Europe, the German Dax, British Ftse, and Paris Cac have traded up 2.8%, 2.5%, and 2.0%.

Less risk aversion also reflected in dollar movements: up 0.5% against the yen but down 1.1% against the Canadian dollar, 0.9% against the Aussie dollar, 0.4% versus sterling, 0.3% against the euro and 0.2% relative to the Swiss franc.

The kiwi lost 0.6% against its U.S. counterpart after the Reserve Bank of New Zealand cut its cash rate by 50 basis points to 2.5% and committed to keeping its benchmark rate no higher than 2.5% until late 2010.  New Zealand construction permits recorded drops of 4.6% and 34.5% on-year in March.

Sovereign bond yields are broadly and significantly higher.

Oil firmed 1.3% to $51.64 per barrel, whereas gold prices eased 0.9% to $892.30 per ounce.

Japanese industrial production increased 1.6% in March, twice as much as expected.  While production still dropped 22.1% last quarter and by 12.7% in fiscal 2008/9, flash indications point to a further recovery of 4.3% in April and 6.1% in May.  METI revised its assessment of industrial production to “appears sluggish” from “dropping steeply.”

Japan’s manufacturing PMI unexpectedly improved to 41.4 in April from 33.8 in March. Housing starts and construction orders recorded sharp on-year declines in March of 20.7% and 37.8% after falling by 24.9% each in the year to February.

The Bank of Japan by an 8-0 vote left its key overnight money rate target at 0.1%.  New forecasts from the central bank look for real GDP to decline 3.1% this fiscal year but to rise 1.2% in fiscal 2010.  A recovery is projected to emerge sometime between October 2009 and March 2010.  Core CPI is expected to drop by 1.5% in FY09 and by another 1.0% in FY10, while domestic corporate goods prices are forecast to post drops of 7.5% this fiscal year and 1.8% next fiscal year.  Governor Shirakawa dispelled speculation the central bank might raise its monthly purchases of JGB’s.  No hint was dropped that monetary policy might be eased or tightened anytime soon.

The Central Bank of Brazil slashed its key Selic rate by another 100 basis points to 10.25%, bringing the cumulative drop to 350 basis points.  More cuts lie ahead.

German unemployment grew another 58K in April and was 289K above the cyclical low last October.  The jobless rate rose two-tenths to 8.3%, having bottomed last autumn at 7.6%.  Job vacancies fell 14K in April, and employment posted an on-year dip of 0.1% in March versus a 1.7% increase in the year to 1Q08.

The unemployment rate in Euroland increased to 8.9% in March from 8.7% in February, 8.2% at end-December and 7.2% in March 2008.  By comparison, the U.S. jobless rate advanced from 5.1% in March 2008 to 8.5% in March 2009.  Those analysts, who are pushing the theory that the U.S. will lead Europe’s business recovery, often point to a more rapid labor market adjustment, but so far the two regions have experienced a surprisingly simultaneous business cycle path.

Euroland’s savings rate rose a full percentage point in 4Q08 to 15.1% and was 1.4 ppts higher than the 13.7% savings rate in 1Q08.

British consumer confidence improved to a 12-month high of -27 in April from -30 in March and -37 in January.  Expected CPI inflation over the coming 12 months remained at 1.8% in April’s survey.

Australian business conditions and business confidence each printed at -24 last quarter compared to respective 4Q08 scores of -21 and -31.  Australian private credit ticked up 0.1% in March and rose 5.7% in the last 12 reported months.

South Korean industrial output rebounded 4.8% in March, almost twice as much as expected, but still fell 10.6% from a year earlier. The factory PCI index improved to a 7-month high of 67 in May from 58 in April.

New South African data underline weakness in that economy, fanning rate cut expectations.  Producer price inflation slowed to 5.3% y/y in March from 7.3% in February.  Private credit growth slowed to 8.5% in April from 11.1% in March, and M3 growth slowed to 10.6% from 13.2%.

Norway also reported soft data.  Real retail sales fell 0.7% in March, and credit expansion slowed to 8.8% y/y from 9.4%.

CPI inflation in Sri Lanka lowed to 2.9% from 5.3% in March.  Factory output in Thailand fell 15.4% in the year to March, while exports and imports slumped by  22.7% and 35.1%.

Italian consumer price inflation remained steady at 1.1% in April.  Spanish consumer prices fell 0.1% in the year to April, same as the on-year drop in March.  French producer prices fell 0.4% on month and 5.5% on year in March.

The flash CPI for Euroland as a whole was 0.6% on year in April, same as in March but a sixth of the April 2008 on-year increase of 3.6%.

The swine flu pandemic code was increased to five from four.

The U.S. releases personal income and spending, jobless claims, the employment cost index, and the Chicago PMI today.  Canadian producer prices and monthly GDP are due as well.

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


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