New Overnight Developments Abroad: Surprise North Korean Nuclear and Missile Test

May 25, 2009

Western leaders have condemned North Korea’s first nuclear test in almost three years.  The surprise action has depressed the Australian and New Zealand currencies by 0.4% and the yen by 0.3% against the U.S. dollar.  The greenback also advanced 0.6% against the Canadian dollar and 0.3% versus sterling, but it is unchanged against the euro and Swiss franc.

The British and U.S. financial markets are closed today for a spring bank holiday and Memorial Day, respectively.

Bund and JGB yields are firmer.  Oil slid 1.1% to $61.02/barrel ahead of an OPEC meeting later this week.  Gold edged down 0.5% to $954.20/ounce.

Asian stocks are mostly up, with gains of 1.3% in Japan, 0.4% in Hong Kong and China, 1.0% in Singapore, and 0.8% in Malaysia and The Philippines.

But equities fell elsewhere by 0.7% in New Zealand and 0.6% in Australia, and the German Dax and Paris Cac are trading 0.9% and 0.6% lower.

The Bank of Japan released its monthly economic assessment showing an upgrade that observed exports and production to be leveling off after substantial drops.  Governor Shirakawa stressed continuing risks and uncertainty, however, and stressed that any recovery will be “mild.”  Like the BOJ, the government cabinet upgraded its assessment of Japan’s ecoomy for the first time since February 2006.  Officials said the recession is not yet over but is slowing in intensity.  The weakening jobs situation and ongoing global financial crisis pose continuing drags.

German construction orders fell 9.1% in the year to March, much less than on-year drops of 17.5% in February and 24.4% in January.

The German IFO Institute released its monthly business climate index with a reading of 84.2 after 83.7 in April and 82.6 in February.  Such remains weak and down from 103.2 a year earlier.  Current conditions worsened to 82.5 from 83.5, but expectations improved to 85.9 from 83.9.  Improvement was concentrating in the retail and wholesale levels.  Construction worsened, and manufacturing was steady at a very depressed level.  The results were not quite as good as hoped but corroborate the more upbeat picture of Germany’s PMI readings and the ZEW index of investor sentiment.

The German IFO services index also rose, climbing to minus five from minus 7 despite a somewhat worse score on current conditions.

Taiwanese export orders sank 20.9% in the year to April, a smaller drop than feared.  Likewise, industrial output fell 19.9% y/y, down from a decrease of 25.8% in the year to March.

Thai real GDP sank 7.1% in the year to 1Q09, a bigger decline than the 6.1% drop in the year to 4Q08.  But all of the decrease was caused by plunging inventories.  Net exports made a positive growth contribution, suggesting that Thailand’s business cycle has passed an inflection point.

Japan’s all-industry index, a supply-side monthly proxy for GDP, fell 2.4% in March and 11.5% from March 2008.  The index tumbled 23.4% at a seasonally adjusted annualized rate in the first quarter, with industrial output plunging 67.2% saar and service sector activity tumbling 12.1% saar.

ECB President Trichet said the central bank is not considering any change in the definition of CPI price stability as below but close to 2%.  Donald Kohn of the Fed said low rates are here for some time.

Consumer prices in Singapore fell 1.5% m/m and 0.7% on year in April.  The 12-month change in March had been +1.6%.

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


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