NBK Weekly Money Markets Report dated 06-06-2010
The FX market witnessed a volatile week where the US Dollar benefited against the majors. The Euro moved sharply lower at the end of the week on comments from French Prime Minister Francois Fillon calling for a weaker Euro against the US Dollar, saying the previous higher exchange rate had damaged French exporters. Fillon’s comments and US Non-Farm Payrolls numbers sent the Euro to its lowest level against the US Dollar in more than four years at 1.1953. The Sterling started the week at a low of 1.4385 and closed the week higher at 1.4460. The Swiss Franc started the week at 1.1500 levels, reached a high of 1.1730 and closed the week at 1.1627. Finally, the Japanese Yen hit a low at 92.89 and closed the week at 91.91.
G-20 Delay Rate Rises
Group of 20 central banks are delaying their withdrawal of emergency stimulus as Europe’s debt crisis shakes financial markets and threatens to hinder the global recovery.
G-20 finance chiefs began talks on Friday in South Korea after central banks from Australia to Canada identified investor reaction to Europe’s indebtedness as a hurdle to higher interest rates. European Central Bank President Jean-Claude Trichet has reversed his exit strategy to combat the Euro’s biggest test, while the Federal Reserve’s Charles Evans and Dennis Lockhart signaled market stress will delay a rise in US rates.
Private employers added 55,000 jobs last month, according to the ADP Employer Services report, a bit weaker than forecast but still a sign of improved conditions. April's job gain was revised upward to 65,000 from an initially reported of 32,000.
Nonfarm payrolls grew at their fastest pace in 10 years by 431,000 jobs on the surge in government hiring but private employment, a barometer of underlying labor market strength, climbed just 41,000. Finally, the unemployment rate fell to 9.7% as Americans dropped out of the labor force.
Services and Manufacturing Sectors Expand
The Services and manufacturing industries in the US expanded for a fifth and tenth month respectively, pointing to a broadening economic recovery that’s generating more jobs.
The Institute for Supply Management’s index of non-manufacturing businesses, which makes up almost 90% of the economy, held at 55.4 for a third month in May. ISM manufacturing index fell to 59.7 from 60.4 in April, exceeding forecasts that called for a decline to 59. Readings greater than 50 point to expansion.
The number of contracts to buy previously owned homes climbed in April as Americans took advantage of the last month of a tax credit. The index of pending home sales rose 6%, exceeding forecasts, following a revised 7.1% gain in March.
Eurozone unemployment rose to its highest level in almost 12 years in April. The European Union's statistics office said 10.1% of the workforce, or 15.860 million people, were jobless in April in the 16 countries using the Euro, up from 10.0% in March. Unemployment is now at the highest level since June 1998.
The overall rise in April was fuelled mainly by a 0.2% rise in unemployment in Spain and Portugal and a 0.1% rise in Italy.
Unemployment was stable in the euro zone's second-biggest economy, France, and fell 0.2% in Germany in April.
Retail Sales Plunge
Eurozone retail sales fell sharply in April, missing expectations of a small monthly rise, as uncertainty over jobs and government spending curbed consumer demand. The European Union's statistics office said Euro Zone retail sales, a good indication of households' propensity to spend, fell 1.2% month-on-month.
Eurozone producer prices rose in April for the seventh consecutive month, and by more than expected, with gains noted in most major components of the index. The 0.9% monthly rise, the strongest jump since July 2008, left prices 2.8% higher on the year, the biggest annual gain since November 2008. Excluding energy, core PPI was up 0.5% on the month and was 1.0% higher than in April 2009.
Activity in the services sector across the 16-nation Euro Zone grew at the fastest pace since August 2007. The services PMI rose to 56.2 in May, up from 55.6 in April and exceeding a preliminary reading of 56.0.
Services and Manufacturing Sectors
Services and manufacturing sectors in Great Britain continued to grow in May. The services PMI rose to 55.4 in May from 55.3 in April. The manufacturing purchasing managers’ index was unchanged at 58.0, matching the 15-year high posted in April.
The Nationwide House Price Index recorded a rise in May of 0.5%, with prices now 12.2% above the low recorded by the index in February 2009. However, economists noted that the rise was less than half that seen in April.
Kan Elected as Japan’s Prime Minister
Naoto Kan took over as Japan’s prime minister, vowing to restore faith in a government plagued by broken campaign promises and funding scandals since it ended 50 years of mostly one-party rule last August.
Lawmakers from both houses of parliament approved the appointment in separate votes. Kan, 63, is the nation’s fifth leader since September 2006 and each of his predecessors resigned after their public approval ratings slumped.
Australian GDP Grows for Fifth Quarter
Australia’s economy expanded for a fifth straight quarter as government stimulus spending helped counter consumer demand that weakened after the Group of 20’s most aggressive interest-rate increases.
Gross domestic product rose 0.5% in the three months to March 31 from the previous quarter.
Canada Raises Interest Rate
The Bank of Canada raised its key lending rate by 25 basis points to 0.50%, the first move in the Group of Seven. The bank added that further moves would be “weighed carefully” against recoveries in Canada and elsewhere amid a sovereign debt crisis in Europe.