New Overnight Developments Abroad: Stocks Up But Dollar and Sterling Down

October 6, 2009

The Reserve Bank of Australia became the first G-20 central bank to raise interest rates, lifting its cash rate from a 49-year low of 3.0% to 3.25%.  Most analysts had assumed such a move would occur 1 or 2 months later than now.  I saw even odds of such happening.

The British Independent ran a story about reported talks between OPEC and China, Japan, Brazil and Russia that would end dollar pricing of oil over nine years.  Only Saudi Arabia has denied the story.  Such a move would be a blow to the dollar’s hegemony in reserve asset portfolios.

British industrial production shockingly fell 2.5% in August and by 11.2% from August 2009.  That relapse followed a 0.5% increase in July and compared to an expected 0.3% uptick.  Factory output fell 1.9% on month (worst since January) and 11.3% on year.  Industrial output in June-August dipped 0.2% from March-May and 10.4% from a year earlier.

Stocks are trading up 1.8% in Germany, 1.5% in Britain, and 1.4% in France.  In the Pacific Rim, equities closed with significant gains of 2.3% in the Philippines, 1.9% in Indonesia, 1.8% in Thailand, 1.3% in Taiwan, 1.1% in China, 1.9% in Hong Kong and 2.0% in Pakistan.  Smaller rises of 0.2% in Japan and 0.4% in Australia and New Zealand were registered.

The dollar is unchanged against sterling but down 1.1% against the Australian dollar, 0.6% versus the Canadian dollar, euro, Swiss franc and kiwi, and 0.5% relative to the yen.  Officials in the euro area have escalated verbal pressure on Chinese officials to resume yuan appreciation against the dollar.

Higher commodity prices provided impetus for the rally in stocks.  Oil firmed 1.2% to $71.26 per barrel, while gold moved close to a record high, advancing 0.6% to $1024.40 per ounce.

Ten-year bund yields firmed 3 basis points to 3.15%, while ten-year JGBs eased a single basis point to 1.26%.

Before the RBA’s surprise rate hike, unveiled with a pronouncement that the risk has passed of a serious economic contraction, Australian trade data were released showing a much smaller decline of the trade deficit to A$ 1.52 billion in August from A$ 1.78 billion in July.  Exports and imports were each lower in August than July.  Australian motor vehicle sales rose 4.9% last month and posted a diminished on-year decline of 3.5%.  Such fell 13.1% from a year earlier in January-September.

Swiss consumer prices were unchanged in September and 0.9% lower than a year earlier.

Austrian wholesale prices fell by 0.4% on month and 8.2% on year last month.

Consumer prices in the Philippines firmed 0.2% last month and 0.7% from September 2008.

Russian consumer price inflation eased further to 10.7% last month from 11.6% in August, kindling speculation of another Russian rate cut soon.

South African business sentiment improved to a 10-month high of 85.5 in September from 83.0 in August.

Hungarian industrial production posted drops of 0.7% on month and 19.9% on year in August.  Output in January through August was 21.8% lower than a year earlier.

The new Japanese government is considering a moratorium for small firms in difficult economic straits on their debt service obligations.  Finance Minister Fujii wants the BOJ to keep monitoring corporate financing.

Dallas Fed President Fisher does not expect a resumption of the U.S. recession but said it’s too early still to begin tightening policy.

The French budget gap in January-August was 89% wider than a year earlier mainly because of a 23.7% plunge in revenues as spending rose 3.2%.

Canadian building permits and IVEY-PMI index will be released today.

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


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