New Overnight Developments Abroad: A Letter From Bernanke in WSJ

July 21, 2009

Ahead of his Humprhey-Hawkins testimony before the House today and the Senate tomorrow, Fed chairman Ben Bernanke placed an Op-Ed piece in today’s Wall Street Journal entitled “The Fed’s Exit Strategy.”  This escalated form of communication can be read by clicking here.  The Journal also runs a lengthy front-page background article on the various political pressures facing the Fed.  Bernanke’s article dwells mostly on the many available tools for reabsorbing excess liquidity.  It does not explain how the Fed will know exactly when to tighten policy and at what speed to act.  The article defends the ultra-loose monetary policy for having counterbalanced the recession and improved financial market functionality and declares that “accommodative policies will likely be warranted for an extended period.”

The dollar advanced 0.7% against sterling and shows marginal gains of 0.2% against the kiwi and Aussie dollar and 0.1% versus the yen, Canadian dollar, and euro.  The Swissy is unchanged.

The Japanese Nikkei-225 jumped 2.7% in a catch-up move after yesterday’s closure for Marine Day.  The Asian Pacific MSCI equity index rose by a further 1.2% to its best close since October 2nd.  Stocks rose 0.9% in Vietnam and Pakistan, 1.9% in Indonesia and Sri Lanka, and 0.7% in South Korea.  In Europe, the German Dax, Paris Cac and British Ftse have traded 0.8%, 0.7% and 0.6% higher.

Oil is steady at $64 per barrel.  Gold is trading just below $950 at $947.70 per ounce.

The yield on 10-year JGBs jumped 5 basis points to 1.37%.  Bund yields edged a basis point lower, and gilts are flat.

The Bank of Japan and Reserve Bank of Australia released minutes from earlier policy meetings.

  • BOJ officials on June 15-16 said the three broad steps to increase liquidity would eventually be discontinued individually.  The minutes reflected concern about elevated long-term interest rates.  A recovery in Japan was expected to emerge between October 2009 and March 2010, that is during the second half of the current fiscal year.
  • Meeting on July 7, Australian monetary officials expressed surprise at the resilience of domestic demand and repeatedly noted areas where Australia’s economy has performed better than most.  Growth risks had diminished, and while policy has the flexibility to ease further if needed, officials doubted such would become necessary.

The Bank of Canada releases a new policy announcement at 13:00 GMT.  No change is expected.  See my preview from yesterday.  Bernanke’s testimony starts at 14:00 GMT.

New Zealand’s trade minister expressed concerned about the kiwi’s strength against the dollar but opined that intervention probably would not be effective.  He also noted that the kiwi has remained fairly steady against the Australian dollar.  Australia’s Treasurer said further fiscal stimulus was not planned.

Britain released June public finance figures, showing huge, albeit slightly smaller deficits than forecast.  The public sector net borrowing in 2Q09 of Gbp 41.2 billion was 90.7% larger than the 2Q08 figure.  The public sector net cash requirement reached Gbp 19.0 billion in June, and Gbp 42.8 billion in April-June, up 136.5% from a year earlier.  Tax revenues were 5.7% lower in June than a year before.  The current budget deficit was Gbp 9.856 billion, 72.5% greater than in June 2008.  Debt as a share of GDP has climbed to 56.6% from 54.8% in May and 44.4% in June 2008.

Consumer prices in Hong Kong fell 0.9% in the year to June, about twice as much as was expected.

New motor vehicle sales in Australia recorded a third consecutive rise in June.  The gain of 5.7% was the most in 4.5 years.

Dutch unemployment rose to 4.8% in 2Q09 from 4.6% in the first quarter and 4.0% a year ago.  Finnish unemployment of 9.1% in June compared to a 6.8% rate in June 2008.

Switzerland’s trade surplus in June of Chf 1.57 billion was 23.5% smaller than a year earlier.  The Greek current account deficit in May of EUR 2.04 billion was down 37.8% lower than a year before.

Japanese department store sales fell 8.8% in the year to June after a 12.3% on-year drop in May.  Such dropped 11.0% y/y in 1H09.  Tokyo department store sales slid 11.4% y/y in June.

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


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