NBK Weekly MM Report dated 13-06-2010
Mixed Greenback Performance
The US Dollar traded in a narrow range against the major currencies during the first 3 days of the week, then weakened against the Euro and Sterling Pound as market sentiment improved before strengthening back on Friday following weak retail sales in the US. The Euro traded during the first 3 days around its week opening of 1.1960, reached a high of 1.2153 before paring back part of its profits and closing the week at 1.2112. Sterling followed the same trend as it fluctuated around 1.4450 from Monday through Wednesday, hiked to a high of 1.4759 before edging back down to 1.4552 on Friday. Japanese Yen oscillated in a narrow range of 90.84 - 92.08, reflecting the overall flat performance of the US Dollar. Yen is exhibiting a higher volatility in cross-currency trading rather than against the US Dollar, in line with its “safe haven” status like the greenback.
Trade Deficit Widens As Exports Fall
The trade deficit widened in April by 0.6% to $40.3 billion, the highest in more than a year, as exports and imports both declined. This figure comes above a revised deficit of $40 billion for March, with exports declining by 1.4% on a monthly basis.
Retail Sales Slump Unexpectedly
Commerce Department reported on Friday that retail sales dropped by 1.2%, the largest drop since September 2009. Demand plunged at building-material stores, reflecting the end of a government appliance rebate. Retail sales, which had risen for seven straight months, were up 6.9% compared to May last year. Excluding autos, sales fell 1.1% in May, the largest decline in 14 months.
Consumer Confidence Rises
The preliminary level for the University of Michigan Consumer Sentiment index came at 75.5, the highest since January 2008. The gauge was projected to rise to 74.5. The figure shows the slump in the stock prices sparked by the European debt crisis is having limited effect on the sentiment, while labor weekly and monthly figures remain cautiously stable.
Bernanke Says Fed is Prepared for Europe Crisis Effects
Federal Reserve Chairman Ben Bernanke said the US recovery, while being sustained by private demand, is not as strong as he prefers and faces risks from Europe’s debt crisis that may require further Fed action. US growth is “not as fast as we would like”, Bernanke told the House Budget Committee in his testimony.
SEC Approves Halts for S&P 500 Stocks That Move 10%
In response to the May 6 plunge in stock prices that wiped out $862 billion in 20 minutes, the US Securities and Exchange Commission (SEC) approved rules that will halt trading in S&P 500 index stocks during extreme volatile sessions. The circuit breaker will pause trading for 5 minutes when a company rises or falls 10% in 5 minutes or less.
ECB Keeps Rate at 1%
As expected, the European Central Bank (ECB) left interest rates at a record low of 1%. The ECB statement indicated that current rates remain appropriate, as it continues to expect price developments to remain moderate. The statement also cited that although global inflationary pressures may persist, domestic price pressures are expected to remain low. Later during the week, Trichet said the ECB will extend its offerings of unlimited cash and keep buying government bonds as it tries to ease tensions in money markets and fight the European debt crisis.
Higher German Factory Orders
German factory orders jumped by 2.8% for a second month in April as the weaker Euro boosted exports demand and companies increased investment. Europe’s debt crisis has pushed the Euro down by 20% against the Dollar since last November, making exports to countries outside the 16-nation currency bloc more competitive. German factories are ramping up production to meet booming foreign orders and a rebound in domestic investment.
IMF Calls for Decisive Action on the Eurozone Problems
The international Monetary Fund (IMF) urged Euro-area governments to take further “decisive action” to ensure the sovereign debt crisis doesn’t derail the region’s monetary integration. The statement also said the ECB’s benchmark interest rate can “remain low” because inflation will likely be tame for the next 2 years. Separately, European finance ministers put the final touches on a rescue fund backed by EUR 440 billion in national guarantees. The stability facility would sell bonds backed by the guarantees and use the money it raises to make loans to European nations in need. The ministers aim for ratings companies to assign a AAA rating to the facility, whose bonds would be eligible for ECB refinancing operations.
Bank of England Keeps Stimulus in Place
The Bank of England’s monetary policy committee kept its bond stimulus program unchanged at £200 billion, as widely expected by the market. The committee also left the benchmark interest rate unchanged at 0.5% as Prime Minister David Cameron prepares the largest budget cuts since at least the early 1980s.
UK manufacturing unexpectedly weakened in April for the first time in 3 months as car production dropped, another sign that the economy recovery may be struggling to keep momentum. The largest decrease was in transport equipment, including cars, followed by food, drink and tobacco, and electrical and optical equipment. Overall industrial production, which accounts for 17% of the UK economy, fell by 0.4%. Separately, producer prices rose by 0.3% in May, less than the median economists’ forecasts of 0.5% increase.
Economy Grew by 5% in 1st Quarter
Japan’s economy expanded more than initially estimated, driven by exports and an upward revision to consumer spending. Gross domestic product (GDP) rose at an annualized rate of 5% in the first quarter of 2010. A fast growth may make it easier for the new Prime Minister to tackle the nation’s public debt, the largest in the world, without derailing the economy’s revival.
Machinery Orders Climb
Japanese machinery orders rose more than economists forecasted, signaling companies are preparing to spend again as the economy recovers and earnings rebound. Orders, an indicator of business investment, hiked by 4% in April from March.
Current Account Surplus Tightens
The total current account for Japan came at ¥1,242 billion in April, dropping from the previous level of ¥2,534 billion. The trade balance component also dropped to ¥859.1 billion as imports and exports increased by 8.1% and 5.3% respectively.
Chinese Inflation Spikes
Chinese inflation quickened to a 19-month high in May as consumer prices rose by 3.1% on a year-on-year basis, compared to an equivalent level of 2.8% in April. However, the statistics office also signaled a moderation of growth in factory production and capital spending, which could ease the risks of a boiling economy. Annual industrial output growth slowed to 16.5% in May from 17.8% in April, while year-to-date investment in urban areas in fixed assets such as flats and factories eased to 25.9% from 26.1%.
Rising Exports and Property Prices for China
China’s exports jumped the most in 6 years to reach 48.5% from a year earlier, significantly above market consensus, widening the trade surplus further. In parallel, a hike of 12.4% in property prices across 70 cities supported again the claims that the economy is withstanding the sovereign-debt crisis in Europe and remains at risk of overheating.
Dinar at 0.29230
The USDKWD opened at 0.29230 on Sunday morning.