NBK Weekly Money Markets Report dated 18-04-2010
Flat Greenback Performance for the Week
The announcement of the EU/IMF aid plan for Greece provided support for the Euro during the early trading hours of the week. The Euro subsequently was unable to hold its gain as renewed fears related to the implementation of the plan weighed on the Euro and Greek bonds prices. After reaching a week high of 1.3692 on Monday, the Euro weakened to a low of 1.3473 on Friday before closing the week at 1.3503. The Sterling Pound was relatively supported by unwinds of EURGBP short positions and was able to reach a week high of 1.5524 before edging down and closing at 1.5463 on Friday, recording a flat performance for the week. Finally, the Japanese currency traded around its Monday opening level of 93.18 throughout the week before strengthening on Friday and closing at 92.17.
Mixed Housing Sector Figures
Foreclosure filings in the US rose 16% in the first quarter compared to the previous year as bank seizures against delinquent homeowners rose. On the other hand, housing starts climbed to an annual rate of 626,000 in March, up 1.6% from February’s revised 616,000. Additionally, building permits, a sign of future construction, rose to 685,000, its highest since October 2008.
Trade Balance Deficit Widens
The trade gap in the US widened by 7.4% to $39.7 bn from a revised $37 bn in the prior month. The widening was mostly due to a rise in imports of consumer goods, illustrating the rebound in economic growth; purchases of foreign-made goods such as televisions, computers, toys and pharmaceuticals climbed to $182.9 billion.
Inflation Still Subdued
The consumer price index rose in March by 0.1%( MoM) and 2.3% (YoY) indicating a tame inflation is accompanying the economic recovery. The core inflation, which excludes the volatile prices of energy and food, held steady at 0% (MoM) and 1.1% (YoY) in line with market expectations. Separately, the prices of goods imported into the US as measured by the Labor Department rose less than anticipated, indicating few signs of building inflation pressures from abroad. The import price index came at 0.7% after a revised -0.2% drop in February.
FED: Economy Expanded “Somewhat” in Most of US
The Federal Reserve mentioned in its Beige Book that the “overall economic activity increased somewhat since the last report across all Federal Reserve Districts except St. Louis”. The statement signals that the recovery is broadening without gaining much speed. The next FOMC meeting will be held on the 28th of April.
Retail Sales Climb while Consumer Sentiment Plunges
Retail sales increased by 1.6% last month, the largest gain in 4 months as more Americans hit shopping malls and auto showrooms in March. In parallel, retail sales excluding autos also rose 0.6%, versus expectation of a hike by 0.5%. Separately, the US consumer sentiment measured by the University of Michigan Survey took a surprise negative turn in April due a persistently grim outlook on income and jobs. The index slipped to 69.5 in early April, the lowest level in 5 months. This figure was below the 73.6 reading seen in March and the 75.0 median forecasted by analysts. Consumer spending fuels about 70% of the US economy.
€45 bn Aid Pledge for Greece
European governments offered Greece a rescue package in an effort to stem its fiscal crisis and restore confidence in the Euro. The plan includes €30 bn in three-year loans at around 5%, less than the current Greek bonds yield. Another €15 bn would come from the International Monetary Fund (IMF). The plan gave a boost for the Euro at the start of the week, but failed to sustain the positive mood as markets went back to their cautious stance on the Greek crisis. Later during the week, Greece sold €1.56 of bills attracting bids for more than 6 times of the offered securities. Greece needs to raise €11.6 bn by the end of May, pushing Prime Minister George Papandreou to ask the EU and IMF to meet in Athens to discuss the implementation of the rescue plan.
Higher Consumer Prices
Inflation in the 16-member Euro region rose by 1.4% in March from a year earlier, and 0.9% on a monthly basis. Core inflation came at 1% on a year-on-year basis, slightly above the previous month’s figure and the market forecasts. This relatively stable inflation provides room for the European Central Bank to keep interest rates at the current level of 1% as previously hinted by Mr. Trichet.
Trade Balance Turns Positive
The Euro region shifted from a trade deficit of €-9 billion in January to a surplus of €2.6 billion ($3.5 bn) in February. Euro-area exports to the U.S., the region’s second-biggest trading partner, fell 1% in January compared to a year ago. Shipments to the UK increased 4% while exports to China surged 45%.
Consumer Confidence Plunges
The UK consumer confidence index published by the Nationwide Building Society dropped by 9 points from February to 72, erasing earlier gains in confidence. The drop is the sharpest since July 2008 as the election due within weeks fueled Britons’ doubts about the economy. Polls indicated that neither the Labour Party nor the opposition Conservatives will win enough seats to control Parliament on the May 6th election.
Producer Prices Drop 1.3% from a Year Earlier
Japan’s producer prices fell by -1.3% in March on a year-on-year basis versus a drop of -1.5% in February and a -1.1% economists’ expectation. On a month-on-month basis, prices were up by 0.2%. Deflation in Japan remains a major recovery hurdle as the latest figure showed a drop of -1.1% in consumer prices on an annual basis.
China Growth Highlights Overheating Risk
Gross Domestic product (GDP) in China rose 11.9% from a year earlier, slightly above the market consensus of a rise of 11.6%. This growth represents the fastest pace for the first quarter in almost 3 years, highlighting overheating risks. A separate report showed that residential and commercial real-estate prices in 70 Chinese cities climbed by 11.7% on year-on-year basis, supporting the asset bubble’s fears. Other regional countries such as India, Australia and Singapore have already started to wind back the stimulus policies adopted during the crisis.
The leaders of Brazil, Russia, India and China (BRIC countries) pledged to resist protectionism and promote steps that will allow trading in local currencies. The leaders during this summit in Brasilia did not discuss the value of the Yuan, and said it was important to maintain the stability of the world’s reserve currencies and major economies’ fiscal policies. Last, the statement cited that the world economy has improved since their last meeting in June 2009 though the recovery “is not yet solid”.
Dinar at 0.28765
The USDKWD opened at 0.28765 on Sunday morning.