New Developments Abroad: Markets React to Revised World Bank Forecasts

June 22, 2009

European stocks and commodities fell while Treasury prices rose in reaction to downwardly revised growth forecasts released by the World Bank.

Unrest in Iran persists.

Oil and gold have eased 2.0% to $68.16/barrel and 1.3% to $924.30/ounce.  10-year JGB yields unchanged.

The Dax and Ftse are off 1.1%, while the Cac40 has fallen 1.3%.  Asian equities closed mixed.  Stocks firmed 0.4% in Japan, 1.2% in South Korea, and 1.8% in Taiwan but fell 3.6% in Vietnam, 1.7% in India, 1.1% in Thailand, and 1.3% in Malaysia.

Commodity-sensitive currencies whacked. The dollar advanced 1.0% against the Canadian dollar, 0.8% against the kiwi, and 0.6% against the Aussie dollar.

Yen firmed 0.6% against the dollar on risk-aversion play.  The greenback also lost 0.6% against sterling but is 0.4% and 0.3% stronger against the euro and Swissy.

The World Bank modified forecasts made three months ago.  Global GDP is now projected to drop 2.9% this year, revised from minus 1.7%, and to expand 2.0% in 2010, revised from +2.3%.  The new projected contractions of GDP in 2009 are 3.0% in the U.S., 4.5% in Euroland, 4.7% in Eastern Europe and 6.8% in Japan.  GDP is expected to rise by 1.2% in all developing economies, including 7.2% in China and 5.1% in India.

The German IFO Institute released new monthly business climate figures.  The overall index jumped to 85.9 from 84.3 in May, 83.7 in April and 82.2 in March.  Current conditions dipped a tenth to a new low of 82.4, so all of the improvement reflected more bullish expectations, which jumped to 89.5 from 86.0 in May and a recent low of 77.0 in December 2008.  Manufacturing (up 4.1 points to minus 33.8), wholesaling (up 2.9 points to minus 26.6) and retailing (+3.8 points to minus 17.3) all improved, while construction (down 0.3 to minus 26.6) stagnated.

IFO’s service sector business climate index followed a similar pattern, with conditions down a point, expectations up a point, and the overall index remaining at minus five.

Japan’s Ministry of Finance quarterly survey of business sentiment revealed a huge improvement among large firms from minus 51.3 in 1Q09 to minus 22.4 in the second quarter.  Analysts looked for a print of minus 38.  The large manufacturing index was at minus 13.2 after minus 66.0, while nonmanufacturing rose to minus 27.8 from minus 42.6.  The overall index for large firms is expected to rise to minus 2.6 in the third quarter of this year and +8.7 in 4Q09.

Japan’s tertiary index, which measures service sector activity, rose 2.2% in April after a drop of 2.8% in March and still fell 6.2% in on-year terms.

The British Rightmove house price index suffered a setback in June, dropping 0.4% from May and by 5.5% from a year earlier.

Italian industrial orders sank by a greater 32.2% in the year to April, with both domestic demand and export orders showing drops of at least 30%.  Industrial sales declined 22.2% y/y, led by a 28.9% slump in the foreign component.  Orders and sales were down 3.7% and unchanged in comparisons of April to March.

Australian motor vehicle sales rose 5.4% in May but still dropped 12.6% from May 2008.

Consumer prices in Hong Kong were unchanged in May from a year earlier.  Analysts had projected a 0.3% increase after 0.6% y/y in April.

Taiwanese unemployment edged up to 5.82% in May from 5.76% in April.  Greek unemployment leaped to 9.3% in 1Q09 from 7.9% in 4Q08.

Austria’s central bank chief, a member of the ECB Council, expects steady ECB interest rates during the second half of 2009.  ECB President Trichet gives a speech at 12:00 GMT.

New Zealand Prime Minister Key warned that recent kiwi appreciation could derail recovery.  Canadian officials have also been concerned about the recent rise of their currency.

Typical of many Mondays, there are no significant U.S. data releases today.  Canadian figures on international transactions arrive at 12:30 GMT.  Central banks in Israel and Hungary announce interest rate decisions.  No changes in their key rates, which are respectively at 0.50% and 9.5%, are anticipated.

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


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