NBK Weekly Money Markets Report dated 07-02-2010
Last week the US dollar rose against a basket of currencies amid fears from the Euro-zone’s worsening fiscal problems, driving investors to abandon risky assets for traditional safe-havens. The Euro fell to more than an eight-month low against the greenback to reach 1.3580 on concerns over the unhealthy debt situation of countries such as Greece, Portugal and Spain. The Japanese yen on the other hand soared against the US Dollar after a weaker-than-expected US jobless claims data. The Dollar fell as low as 88.54, closing the week at 89.22. The Sterling was also hit, falling to its lowest in nearly four months at 1.5557 and closing the week at 1.5642. The Swiss franc reached a high of 1.0497 mid-week but fell to reach a low of 1.0794 against the Dollar, closing the week at a low of 1.0724.
The number of US workers applying for jobless benefits unexpectedly rose last week. Financial markets expected 461,000, while the actual figure is 480,000 claims, rising by 8,000 from the previous 472,000 the week before. The ADP employment change report showed that the private sector shed 22,000 jobs in January from a previous 61,000 jobs in December. Declining consecutively for the 24th time and reaching the lowest since January 2008.
The unemployment rate in the United States unexpectedly declined in January to 9.7%, the lowest level since August 2009. A sharp increase in the number of people giving up looking for work helped to depress the jobless rate. The number of “discouraged job seekers” rose to 1.1 million in January from 734,000 a year ago.
In similar news, nonfarm payrolls dropped as companies boosted worker hours and overtime instead of taking new hires. Employment fell by 20,000 last month, reflecting a plunge in construction jobs and a drop in state and local government hiring.
The ISM manufacturing rose to 58.4 from a previous of 54.9, rising higher than anticipated by the market, indicating that the manufacturing sector is expanding at the fastest pace since August 2004. On the other hand, the ISM non-manufacturing index rose to 50.5 in January from a previous 49.8, while the market expected a rise to 51.1 indicating slower growth in the services sector.
European Central Bank Rate Decision
The European Central Bank kept its key interest rate unchanged, as expected, at the record low of 1.00% for the ninth consecutive month, driving the Euro down against a basket of currencies amid concerns over huge and growing budget deficits, mainly from Greece. The ECB is expected to leave its emergency lending measures unchanged, after the European commission cautiously authorized Greece’s plans to slash its budget deficit over the next three years.
Expansion in Europe’s manufacturing sector accelerated more than estimated in January as reviving global demand prompted companies to increase output. The PMI manufacturing index increased to 52.4 from a previous 51.6 in December. The Euro-zone services sector expanded at a slower pace in January than the previous month as country divergence widened. The PMI services index dropped to 53.6 from a previous 54.2.
Euro-zone retail sales did not change from the previous month, as economists expected a rise of 0.4% as fragile consumer confidence underlined Europe’s weak economic recovery.
Bank of England Rate Decision
As expected the Bank of England kept its key lending rate unchanged a 0.50%. In addition, the bank of England ended its Quantitative Easing program by reaching its target of £200 billion, spent on the government and companies, to stimulate the economy out of the worst recession since World War II.
The PMI manufacturing index climbed to 56.7 last month, better than the expected 54.00 and higher than the previous 54.1, indicating a rapid recovery in activity in the first month of the year. Meanwhile the services sector slowed more than expected last month, resulted by bad weather conditions that hit the country. The PMI services index fell to 54.5 in January, from a previous 56.5.
The Nationwide consumer confidence index rose to 73 only three points from the previous figure. Rising 34 points from the same month last year when the economy was deep in the recession. This raises optimism on the overall economy.