NBK Weekly Money Markets Report
Mixed Greenback Performance
Last week, the US Dollar traded in a relatively narrow range against other G7 currencies, recording a mixed performance as economic sentiment across the globe diverged. The Dollar was weaker against the European currency as Eurozone reported positive figures for its GDP and Confidence levels. The Euro dropped during the first 2 days to 1.2625, more than 100 points below its week opening, then rebounded to close on Friday at 1.2896. The Sterling Pound approached its 1-month low against the Dollar and recorded a fourth weekly loss, pressured by weaker UK services numbers. The Pound depreciated during the first half of the week, reaching a low of 1.5327 on Tuesday, then range-traded during the remaining sessions to close at 1.5452, down 0.52% for the week. The Japanese Yen resumed its strengthening trend despite the Bank of Japan expanding its lending facility, while pressures for an intervention augmented. The Japanese currency reached a high of 83.67 earlier during the week to close at 84.31 after a short-lived dip following the US employment figures.
Stronger Housing Numbers
The S&P/Case-Schiller Composite Index, measuring average homes prices in 20 metropolitan markets, showed that prices rose by 0.28% in June, slightly above market consensus. On an annual basis, prices as measured by the index are up by 4.23%. Later during the week, pending sales of existing houses unexpectedly climbed in July from a record low, indicating the real estate market is steadying after the end of the government tax credit. Pending home sales rose by 5.2% in July after a revised 2.8% drop during the prior month.
Consumer Confidence Tops Expectations
The Conference Board’s confidence index rose to 53.5 from a 5-month low of 51.0 in July. Consumer confidence climbed more than the forecasted 50.7 level, as Americans turn less pessimistic about the outlook for jobs, easing retrenching households concerns. The report also showed consumers were less hopeful about current job prospects even as their outlook improved.
Consumer Spending Rises, Incomes Lag
The Commerce Department released July’s figures, showing that consumer spending rose by 0.4%, the largest increase since March, exceeding gains in incomes and indicating the economy may avoid slipping back into recession. Incomes climbed 0.2%, while the savings rate dropped.
Private Hiring Beats Forecasts
Employment fell for a third straight month in August, as the unemployment rate rose from 9.5% to 9.6%. However, the drop was far less than expected and private hiring surprised on the upside. Nonfarm payrolls declined 54,000, decreasing the fears of a double-dip recession in markets that had looked for a drop of 100,000 jobs. Private payrolls climbed 67,000 after a revised 107,000 increase in July that was more than initially estimated.
European Confidence Rises
The European Commission in Brussels reported an improvement in the European confidence in the economic outlook to the highest in more than two years, after surging exports helped easing pressures on the recovery. The Economic Confidence rose to 101.8, from a revised 101.1 in July. The report also showed a slight improvement in the Consumer and Services Confidence.
Inflation Slows and Unemployment Holds Steady
European consumer prices rose 1.6% from a year earlier after increasing 1.7% in July. Crude oil prices contributed to the drop in growth, as energy prices slid 9.6% in August. Additionally, the jobless rate in the Eurozone held at its 12-year high of 10%, with 15.8 million unemployed.
German Retail Sales Fall for a Second Month
Retail sales in Germany, Europe’s largest economy, unexpectedly fell for a second month in July after helping fueling record growth in the second quarter. Sales declined 0.3% in July, after dropping another 0.3% during June. Economists had forecasted a gain of 0.6%. On a year-on-year basis, sales are still up by 0.8%.
ECB Will Extend Emergency Bank Lending
The European Central Bank (ECB) policy remains in crisis mode as the risk of a renewed US recession puts the European region’s economic rebound in jeopardy. ECB President Jean-Claude Trichet extended emergency lending measures for banks into 2011; the ECB will keep offering banks unlimited 1-week and 1-month loans until January 2011. It will also offer banks 3-month loans in October, November and December. Moreover, the ECB Governing Council set the benchmark lending rate at 1% for the 17th month, as widely predicted and priced in the market. In his commentary, Trichet said rates are “appropriate”, signaling no immediate plan to tighten monetary policy.
Economic Growth Confirmed at 1.0%
GDP growth for the Eurozone accelerated to 1%, in line with a previous preliminary estimate, from a revised 0.3% increase during the first quarter. This fastest expansion since 4 years was mainly supported by a surge in European exports and corporate spending. Exports jumped 4.4% from the first quarter, the largest gain since 1995, while corporate spending rose 1.8%. Going forward, the economy may struggle to maintain its momentum as governments from Spain to Ireland trim budget deficits and the global recovery shows signs of weakening. In line with these concerns, the ECB extended its lending facilities, as mentioned above.
Services and Manufacturing Growth Ease
Adding to the signs that the region’s export-driven recovery is losing momentum, growth in services and manufacturing industries weakened. The PMI composite index, measuring both industries activity, declined to 56.2 in August from 56.7 in July. Separately, European retail sales numbers showed a rise less than forecasted, advancing 0.1% in July.
House Prices Decline Again
The Nationwide Building Society reported a drop of 0.9% in house prices during August, to an average of £166,500. From a year earlier, prices are still up by 3.9%, the weakest pace since November. The reports cited the decline in prices came as increased supply of property gave buyers more bargaining power.
Service and Manufacturing Weaken
UK manufacturing unexpectedly weakened in August as the PMI manufacturing dropped to 54.3, from its previous month’s level of 56.9. While Britain’s economy expanded at the fastest pace since 2001 in the last GDP print, the decline in manufacturing growth to the weakest in 9 months adds to the increasing pressure on the economic recovery. Similarly, the PMI services also reported an unexpected drop to 51.3, versus expectations of 52.9.
Bank of Japan Expands Its Loan Program
The Bank of Japan (BOJ) expanded a bank-loan program, stepping up its monetary policy for the first time since March. The BOJ will boost the facility’s funds by ¥10 trillion yen, totaling ¥30 trillion. The stimulus comes after the economy’s recovery weakened in the past quarter and the government pressured the central bank to act. Politicians have increased calls for the BOJ to help stem a surge in the yen to a 15-year high. Finally and as expected, the BOJ kept its key overnight loan rate at 0.10%.
Better Factory Output and Retail Sales
Japan’s industrial production and retail sales recouped losses in July. Factory output rose 0.3% from June, after declining 1.1% in June. Retail sales advanced by 0.7% on a monthly basis, and 3.9% for the year. Both rebounds failed to dispel concerns that the nation’s expansion is slowing.
Indian Economy Expands by 8.8%
India’s economy expanded at the fastest pace in more than 2 years, reaching a growth of 8.8% in the 3 months through June from a year earlier, after an 8.6% increase in the previous quarter. The reading increases the pressure on the central bank to extend an aggressive round of monetary policy tightening, with inflation remains a major challenge for policy makers in India.
Dinar at 0.28730
The USDKWD opened at 0.28730 on Sunday morning.