New Overnight Developments Abroad: Global Financial Market Turmoil Continues Over Dubai

November 27, 2009

Stocks fell 4.8% in South Korea and Hong Kong, 3.2% in Japan and Taiwan, 3.0% in China, 2.9% in Australia, and 1.8% in South Africa.  The Ftse and Cac40 are 0.4% lower, and the Dax has lost another 0.4%.  Stock futures point to a sharp catch-up decline in U.S. equities, which did not trade yesterday.  The catalyst for this upheaval was Dubai’s request to reschedule debt payments, which was reminiscent of how the big crisis began in 3Q07.

With risk aversion remaining high, the dollar extended its recovery, advancing 0.8% against the kiwi, 0.7% against the Aussie dollar, 1.0% relative to the Canadian dollar, and 0.5% against sterling, the euro and Swiss franc.  From the New York pre-Thanksgiving close, the dollar is up 3.6% against the kiwi, 3.5% versus the Aussie dollar, 2.5% against the Canadian dollar, 1.6% against the euro, 1.5% against the Swiss franc, and 2.1% versus sterling.

The yen retreated 0.7%, however, and is just 0.9% stronger against the U.S. currency than its close on Wednesday.  Japanese Finance Minister Fujii warned of possibly seeking a coordinated policy response to recent foreign exchange market movements from his counterparts in the United States and Europe.  It is unlikely that he will get that support.

Fixed income assets are back in favor.  Ten-year sovereign debt yields fell by 10 basis points in Britain, 7 bps in Germany, and 4 bps in Japan.  A drop of 4-5 bps from Wednesday is indicated in Treasuries.

With Dubai at the epicenter of the crisis, oil slumped another 4.9% and is nearly 7% lower than its level on November 18.  With the dollar strengthening, gold lost 2.1% overnight and 2.6% from yesterday’s record high to $1163.60 per troy ounce.

Japan released data on the labor market, household spending, retail sales, securities transactions and consumer prices.  Activity indicators showed more life than had been assumed.

  • The jobless rate unexpectedly fell two-tenths to 5.1% in October, the third consecutive decline of that amount.  Employment posted a 1.8% on-year drop, and the job seekers to job offers ratio firmed a tenth to 0.44 from 0.43 in September and a cyclical low of 0.42 in July and August.
  • Real household spending increased 0.7% between September and October and by a greater-than-forecast 1.6% from a year earlier.  Workers’ real disposable incomes fell 1.9% on year, however.
  • Total retail sales in October were 0.9% lower than a year earlier versus an expected decline of 1.1%.  Large-store sales plunged 7.2% in the latest 12-month period, paced by a 13.1% drop in clothing.
  • Stock and bond transactions generated a Y 119.5 billion outflow in the week of November 21, much less than the net Y 658.4 billion outflow in the prior week.
  • Consumer prices fell 0.4% in October and by 2.5% from a year earlier.  Core CPI (excluding seasonal food only) slid 0.1% and 2.2% on year), and consumer prices not including food and energy were steady and 1.1% lower than a year earlier.  Consumer prices fell 2.6% at a seasonally adjusted annualized rate between April and October, similar to their 2.5% pace of decline in the previous six months.

Euroland sentiment indicators were better than forecast.  The business climate index printed at minus 1.56 in November after minus 1.79 in October, minus 2.08 in September and a low of minus 3.27 last March.  For the first time this year, the reading was higher than a year earlier, when such was minus 1.62.  Economic sentiment in the euro area rose 2.7 points to 88.8 in November versus consensus forecasts of 88.0.  Such had been 73.2 in mid-2009 and recorded a low of 64.6 back in March.  Industrial sentiment rose two points to minus 19, while consumer sentiment advanced a point to minus 17.  Each was as forecast.  Sentiment indices for services, retail activity, and construction improved 3, 4, and 3 points to minus 4, minus 11, and minus 26.  Yet a third gauge, the EuroCoin indicator rose 0.22 points to 0.55.

Swedish real GDP firmed 0.2% last quarter but was 5.0% weaker than in 3Q08.  Inventories accounted for half the on-year decline.  Swedish retail sales increased 1.5% in October and 5.5% from a year earlier.

French consumer confidence rose four points to minus 30 in November.  A minus 35 reading had been expected.

Finnish retail sales dropped 1.2% in the year to October, more than twice as much as expected.  Finnish business sentiment weakened four points to minus 19 in November, and consumer confidence dropped 1.4 points to 10.9.  Both readings were worse than assumed.

Spanish consumer prices swung to positive territory in November (+0.4% from a year earlier) versus minus 0.6% in the year to October.  Belgian consumer prices still posted a slight on-year drop (0.1%) in November.  Slovakian producer prices firmed 0.2% in October but fell 5.8% from a year earlier.  That economy reported higher business sentiment but lower consumer sentiment in November.

Poland’s central bank, as expected, announced yesterday that it was keeping its key interest rate at 3.5%.

Italian hourly wages climbed 3.2% in the year to October compared to a 3.1% on-year rise in September.

On Thursday, Germany reported a lower-than-forecast 0.2% monthly drop in consumer prices and a positive 0.3% on-year rate of inflation.  It was announced today that import prices increased 0.5% in October, their second sizable monthly gain in three months, and a diminished 8.1% on-year drop after declines of 11.4% in the 12 months to both August and September.  Oil accounted for the entire rise of import prices last month.  Without that factor, the import price index was steady on month and down 7.9% on year.  In the year to August, such had declined 6.9%.

The Swiss index of leading economic indicators rose 0.18 to 1.62 in November.

New Zealand’s trade deficit narrowed 13.5% in October to NZ$ 487 million.

Not all Asian stock markets tanked today.  Some were closed for Hari Raya Haji, which commemorates the conclusion of the annual Haj to Mecca.  Such closures were observed in Malaysia, Singapore, and Indonesia.

No significant U.S. data releases are scheduled today.  Many workers will be extending their holiday.  In Canada, the 3Q quarterly current account will show a large deficit.  The Bank of Mexico is unlikely to change its interest rate following this month’s policy meeting.

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


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