NBK Weekly Money Market Report dated 08-08-2010
Lower US Dollar
The announcement of ECB and BoE Rate decision and employment numbers in the US paved the road for stronger European currencies against the US Dollar. The Euro rose during the week to reach a high of 1.3333 and closed at 1.3288. The Sterling Pound continued its bull rally since mid May, opening the week at 1.5709 reaching a high of 1.6002 and closing the week at 1.5950. The Swiss Franc started the week at 1.0430 and closed at almost the same level at 1.0395. Last, the Japanese currency strengthened further to 85.00 against the US Dollar, Yen closed the week at 85.35.
More Americans filed applications for unemployment insurance last week, indicating firings remain elevated as the recovery moderated. Initial jobless claims climbed by 19,000 to 479,000 in the week ended July 31, the most since April and exceeding the highest estimate of economists.
Companies in the US added workers in July for a seventh straight month at a pace that suggests the labor-market recovery will be slow to take hold. Private payrolls that exclude government agencies rose by 71,000 after a June gain of 31,000 that was smaller than previously reported. Overall employment fell 131,000 and unemployment held at 9.5%.
Pending Sales of Existing US Homes Decrease
The number of contracts to purchase previously owned houses unexpectedly fell in June, indicating demand kept dropping after the expiration of a homebuyer tax credit. The index of pending home resales dropped 2.6% from the prior month. The expiration of a government tax credit on April 30 caused the gauge to slump 30% in May, the most since data began in 2001.
The manufacturing rebound that helped the US out of the recession cooled in July, reflecting a slowing in orders and production. The Institute for Supply Management’s manufacturing gauge dropped to 55.5 last month, from 56.2 in June.
Service industries expanded in July at a faster pace than forecast, The Institute for Supply Management’s index of non-manufacturing businesses, which covers about 90% of the economy, rose to 54.3 from 53.8 in June.
ECB Keeps Rate Unchanged at 1%
The European Central Bank left interest rates at a record low as policy makers start to consider how to scale back the crisis-fighting measures introduced over the past two years. The ECB’s Governing Council meeting in Frankfurt set the benchmark lending rate at 1% for a 16th month.
Following the rate decision, European Central Bank President Jean-Claude Trichet said Europe is recovering faster than forecasted and money markets are improving, paving the way for the ECB to phase out liquidity tools used to fight the financial crisis. Trichet added that ECB’s main rate is still “appropriate,” he said, indicating officials see no immediate need to tighten their policy.
European interbank lending rate hits highest in a year
European bank lending rates have risen to their highest in a year after Jean-Claude Trichet, president of the European Central Bank, signaled his lack of concern. Though the ECB held its key-refinancing rate at 1%, as expected, three-month Euribor, a closely followed rate at which banks lend to each other, rose to 0.904%, it’s highest since July 2009.
European retail sales were unchanged in June as households cut spending in Germany and France. The Sales in the 16-nation Euro area showed no increase from May, when they rose 0.4%. In Germany, the region’s biggest economy, June retail sales declined 0.9% in the month, while France, the Euro region’s second-largest economy, showed a 1.3% decrease.
German factory orders surged more than twice as much as economists forecast in June as the global recovery gathered strength and European companies increased investment. Orders, adjusted for seasonal swings and inflation, rose 3.2% from May, when they dropped a revised 0.1%.
BoE Keeps Interest Rate and Stimulus in Place
The Bank of England kept its bond-stimulus plan in place and left its benchmark interest rate at a record low as officials’ sustained emergency aid for the economy during the biggest budget squeeze since World War II. The nine-member Monetary Policy Committee, led by Governor Mervyn King, held the target for bond holdings at 200 billion pounds ($318 billion.) The bank kept the key interest rate at 0.5%.
UK Banks Post Profits
Royal Bank of Scotland Group Plc, Britain’s biggest government-owned lender, swung into profit for the first time since 2007 as bad-loan provisions dropped. Net income was 9 million pounds ($14 million) in the first six months of the year, compared with a loss of 1.04 billion pounds a year earlier.
Lloyds Banking Group Plc, Britain’s largest mortgage lender, reported a profit for the first time since its acquisition of HBOS Plc forced the bank to seek a government bailout. Bad-loan charges fell by half. Pro-forma pretax profit was 1.6 billion pounds in the first six months of the year, compared with a loss of 3.96 billion pounds a year earlier.
Barclays Plc, Britain’s third-largest bank, said first-half profit rose 29% as a drop in provisions for bad loans mitigated a decline in investment banking revenue. Net income rose to 2.43 billion pounds ($3.9 billion) from 1.89 billion pounds in the year-earlier period.
House Prices Rise Most in Four Months
UK house prices rose the most in four months in July as record-low interest rates and the economic recovery boosted demand for homes, Halifax said. The average cost of a home increased 0.6% to 167,425 pounds ($266,540), reversing a decline in June.
Australia Keeps Key Rate at 4.5%
Australia’s central bank kept interest rates unchanged for a third month after slower inflation and diminished financial risks abroad left officials with little need for any shift in policy. Governor Glenn Stevens maintained the overnight cash rate target at 4.5%.
Dinar at 0.28590
The USDKWD opened at 0.28590 on Sunday morning.