NBK Weekly Money Market Report 15/10/2009
Greenback Still Falling
The weakening US dollar trend continued as declining risk aversion remained a major driver in the greenback depreciation. The sinking US dollar pushed gold, oil and equities to one-year highs during the week. The Sterling pound started the week on the back foot at a flat 1.58 after weaker than expected inflation data; however, comments from the Bank of England officials helped the currency bounce back to a high of 1.6400 on Friday before closing back at 1.6356. In parallel, the Euro started the week at 1.4730, rallied to a double top of 1.4970 before giving away part of its gains on Friday and closing at 1.4905. The Yen was mainly flat against the US Dollar at around 89.80 in the first sessions before weakening towards the end of the week and closing at 90.89 on Friday.
Last week was very busy with major corporate earnings, especially from financials. On Wednesday, JPMorgan’s results sent equities to their year-high, lifting the Dow above the psychologically-important level of 10,000. Earnings for JP Morgan climbed to $3.59 billion, or 82 cents a share, from a $527 million in the same period a year earlier at the height of the financial crisis. Later during the week, Goldman Sachs announced near-record earnings of $3.2 billion, boosted by surging profits in bond and currency trading. Citi, by contrast, suffered its seventh loss in eight quarters as US consumers continued to fall behind on credit card bills and mortgage payments; the loss came ay $0.27 per share. Finally, Bank of America, the largest US bank by deposits, said on Friday it had lost $1bn in the third quarter as weakened consumers continued to translate into credit losses.
Mixed Retail Sales Data
Advance retail sales for the US came down by -1.5% to $344.7 billion in September, versus a prior figure of +2.7% and estimates of -2.1%. The sharp monthly swing is mainly due to the expiry of the Cash-For-Clunker rebate program initiated by the US government in an attempt to support car manufacturers by boosting demand. Retail sales excluding auto sales actually rose by 0.5% in September, showing that apart from the troubled auto industry, sales are gradually improving.
Consumer Prices Edges Up in September
The US labor department announced on Thursday that the consumer price index ticked up in September by 0.2%, leaving inflation at -1.3%, on an annual basis. Core price inflation, the measure by which economists judge the inflation risk, also rose by 0.2% on a monthly basis and by 1.5% on a yearly interval. Much of the monthly gain was due to price increases for used cars and trucks, apparel and medical care. The latest meeting minutes from the Federal Reserve indicated that inflation is unlikely to be a problem in the near term.
Consumer Sentiment Falls Unexpectedly
The consumer confidence measured by the University of Michigan survey came at 69.4 for October, below expectations of 73.3 and the previous month’s level of 73.5. The drop in confidence comes after 3 consecutive monthly improvements. The report said diverging prospects for the general economy and personal finances would have a negative impact on the pace of the recovery, with consumers eager to increase their savings and pay down debts.
Deflation Shifting Slowly Towards Inflation
On a year-on-year basis, the Eurozone consumer prices were negative at -0.3%, in line with market expectations. Excluding the volatile price of food and energy, the core inflation came positive at 1.2%. For the month of September, inflation was flat at 0%. The weakness in September’s inflation was broad-based: energy prices declined in September, thereby reducing the annual rate to -11%. Food prices also eased to an annual decline of -1.3%. All member states except Italy and the Netherlands reported lower headline inflation rates; Germany and France reported an annual rate of -0.5% and -0.4% respectively.
ZEW: Moderately Below Expectations
The ZEW survey for Germany’s economic sentiment came down to 56.0 from 57.7 in the previous month. The less-watched ZEW economic sentiment index for the Euro area inched higher to 56.9 from 56.6. The decline in the economic sentiment index probably reflects the slowdown in the rally of the equity market, which tends to have a strong impact on this survey.
A Moderate Bounce in the Industrial Output
Industrial output in the Euro area expanded strongly in August, but the 0.9% month-on-month gain was surprisingly small compared to the large gains recorded in all the big five member states. According to the report, the gain was driven by the durable consumer goods sector and the expanding production of capital goods.
UK unemployment remained flat and fewer people signed on for jobless benefits as the recession eased. The ILO Unemployment rate for September came at 7.9% versus a market consensus of 8.0%. The Office for National Statistics said 2.46 million people were unemployed and seeking a job between June and August, slightly fewer than the 2.47 million unemployed between May and July. Finally, claims for jobless benefits rose by 20,800 in September, less than the forecasted 24,500.
Inflation Falls to Lowest Level in 5 Years
Inflation fell sharply in September to its lowest level in 5 years as the consumer price index dropped to an annual rate of 1.1%, down from the 1.6% figure in August. Analysts on average had expected inflation to fall to 1.3%. Declining energy prices since last year, combined with rapidly falling demand because of the recession, have helped to drag down the rate of price rises. Utility prices also fell by 1.1% over the year, the sharpest decline since records began in 1997. The target inflation for the Bank of England is 2%.
Bank of Japan Holds Rate at 0.1%
The Bank of Japan (BoJ) held its benchmark interest rate near zero and refrained from declaring whether it would end its corporate debt purchase programs. The BoJ became more optimistic about the economy, saying it has “started to pick up’.
China’s Trade Numbers Improve
The recovery in China’s economy gained a new drive on Wednesday with figures showing a sharp improvement in the country’s exports and imports in September. Chinese customs said exports had fallen by 15.2% in September against the same month last year, compared with a 23.4% decline in August. The stronger export performance follows a similar trend in South Korea, Taiwan and Vietnam. The improvement was even more pronounced in imports, which dropped by 3.5% in September after falling 17% the previous month, an indication that domestic demand in China is recovering. On another note, the Obama administration reiterated last week its “serious concerns” about the value of the Chinese Renminbi, but did not accuse this time China of “manipulating its currency”. US had previously argued that China is deliberately undervaluing its currency to make exports unfairly cheap to US consumers.
Oil Jumps to One-Year High of $78.75 a Barrel
Crude oil rose above $78.75 a barrel, the highest in more than 1 year, as equity markets raised optimism for the global energy demand. The weakness of the US dollar also supported the surge in oil prices, as the greenback downward trend continued last week.
Dinar at 0.28575
The USDKWD opened at 0.28575 on Sunday morning.