NBK Weekly Money Markets Report dated 09-05-2010
Stronger US Dollar Across the Board
The US Dollar rallied across the board last week as fears of contagion stemming from the Greek debt crisis escalated and pushed US stocks to one year lows. The greenback benefited from heightened risk aversion as investors rushed to the perceived safety of the US Dollar along with better-than-expected US data. The Euro broke the psychological level of 1.3000 and dropped sharply to a low of 1.2520 from a high of 1.3340, on growing fears that the Greek crisis will affect the more vulnerable members of the Euro zone. The Sterling Pound dropped to a one-year low as the UK faces uncertainty over government control following results of the UK general election. The Pound traded at a low of 1.4475 after reaching a high of 1.5320 earlier in the week. The Japanese Yen also benefited from the risk aversion theme as it reached 88.00 against the US Dollar after having traded around a low of 95.00 to close the week at 91.60. The Swiss Franc traded between 1.0740 and 1.1245. Finally, the Australian Dollar dropped sharply to 0.8715 levels from a high of 0.9275 as hints of a monetary tightening by the RBA sparked a sell-off in the currency.
Stocks Fall Sharply
The US stocks suffered one of their biggest ever intraday sell-offs last Thursday, wiping out about $1 trillion in market capitalization at one point before the market recovered some of the losses. This might have been attributed to investors’ increased worrisome over the Euro zone’s debt crisis and its contagion fears. On the other hand, this could have been due to potentially erroneous transactions whereby automated orders were activated by false trades. Additionally, it was believed that a trader had accidentally placed an order to sell $16 billion, instead of $16 million, worth of futures, which was enough to trigger sell orders across the market.
The labor market is on the mend after being hardly hit during the recession, but the recovery pace may be slow for the 8.2 million Americans who had lost their jobs during the worst downturn since the 1930s. The number of US workers filing new applications for unemployment benefits dropped 7,000 to 440,000 from the previously reported 451,000.
Nonfarm payrolls grew at the fastest pace in 4 years I April, as private sector employers increased hiring, raising the possibility that the labor market recovery may be picking up steam. Employers added 290,000 jobs in April.
the unemployment rate, however, rose to 9.9%, from a previous 9.7%, as people streamed back into the market looking for work.
Resilient economic data has boosted the US Dollar further last week. The ISM Manufacturing index surged to its highest level since June 2004 at 60.4, beating estimates for an improvement to 60.0 from 59.6 in April. New orders received by U.S. factories jumped unexpectedly by 1.3% in March as businesses rebuilt inventories, pointing to continued strength in manufacturing. Personal consumption expenditures index edged up by 0.1% on a monthly basis and by 2.0% on an annualized basis.
In the housing market, pending home sales of previously owned U.S. homes rose more than expected to a five-month high in March, as buyers rushed to sign contract before the popular tax credit expires. However, the non-farm productivity growth slowed sharply in the first quarter, rising by 3.6% from 6.3% in the fourth quarter of 2009, suggesting businesses will have to raise employment to boost output.
The European Central Bank (ECB) kept its main refinancing rate unchanged at a record low of 1.00%, as widely expected by the financial markets. In a statement following the central bank’s meeting, the ECB’s president Mr. Jean-Claude Trichet said the central bank had not considered buying government debt to stop the Euro’s rout as some had speculated and that a Greek default was “out of the question.”
German manufacturing orders rose 5.0% in March, rounding off a surge in first quarter demand that offered strong evidence that the recovery in Europe’s largest economy is gathering pace. German retail sales declined in March by 2.4% despite a brighter outlook, as the traditional German winter sales ended.
A Weaker Sterling Following Elections
The Sterling Pound started the week on a stronger footing trading at a high of 1.5320 against the US Dollar. However, the Pound lost ground later during the week as the outcome of the country’s elections along with a stronger Dollar weighed on the currency taking it to 1.4470. The lack of clarity about the composition of the next government and the possibility of a hung parliament raised uncertainty about how Britain would tackle its towering deficits.
The British manufacturing activity grew last month at its fastest rate in more than 15 years, boosting hopes that the broader economy is gathering momentum. The manufacturing Purchasing Managers Index (PMI) rose to 58.0 in April up from 57.3 in March. The PMI non-manufacturing report came in as expected at 55.3 showing steady growth in the service sector.
The British mortgage lending rose by GBP 318 million in March, well below the anticipated 1.6 billion hike and the lowest since July 2009, reflecting housing market weakness at the start of the year.
Reserve Bank of Australia Hikes Interest Rates
The Reserve Bank of Australia raised its cash rate by 25 basis points to 4.50% last week. Despite the strength of the economy, the RBA signaled that the first stage of its tightening cycle was over following its six hikes in eight months.
Dinar at 0.28945
The USDKWD opened at 0.28945 this morning following the performance of the US Dollar last week.