NBK Weekly Money Markets Report dated 24-01-2010
Stronger US Dollar across the Board
The US Dollar rallied across the board last week, as risk aversion heightened, knocking stocks around the world lower. The Euro dropped to a 5-month low against the Dollar reaching 1.4025. The Sterling Pound traded at a high of 1.6371 and a low of 1.6075, and closed the week at 1.6125. The Japanese Yen reached a high of 89.80. Finally, the Swiss Franc reached a low of 1.0495.
Large Banks Posting Mixed Results
Major banks posted mixed results last week, reflecting the industry’s slow recovery, but there were some signs that the worst may be over for the battered economy. Citigroup and Bank of America disappointed investors by posting heavy quarterly losses of $6.2 and $5.2 billion respectively. Morgan Stanley was profitable for the second consecutive quarter but earnings fell short of investors’ expectations. On the other hand, Wells Fargo Bank, Goldman Sachs and JP Morgan made healthy profits.
New US residential construction slipped during a wintry December, while a surge in building permits signaled that more building could be in store. Housing starts fell 4% to 557,000 in December, a fall larger than expected and highly attributed to bad weather. However, building permits, which signal future construction, jumped by 11% during the month to 653,000, the highest level in more than a year.
The number of US workers newly applying for unemployment benefits unexpectedly rose last week. The Labor Department said that initial jobless claims rose for three weeks in a row by 36,000 to 482,000 last week, hinting at some slowing in the pace of economic recovery. On the inflation side, the US producer prices rose for the third month in a row in December, increasing by 0.2% on a surge in food prices, and recording their largest year-on-year gain since October 2008.
The Euro Drops Sharply
The Euro dropped sharply last week to reach a low of 1.4025 against the strengthening US Dollar, as persistent worries over Greece’s government finances raised concerns about the country’s ability to finance its ballooning budget deficit.
Weak numbers in the Eurozone weighed on the currency and warned that the recovery in the Eurozone economy might be slow in the coming months. The German investor sentiment fell broadly in January, dropping from 50.4 to 47.2. On the services part, the Eurozone’s dominant services sector continued to expand in January, although at a much slower pace than expected. The Services Purchasing Managers Index dropped to 52.3 in January from 53.6 in December.
Additionally, German Industrial Orders have deteriorated rapidly dropping unexpectedly by 2.9% against an expected 0.5% increase.
A Volatile Sterling
The Pound has strengthened earlier in the week on M &A talks that the US-based Kraft Foods and Britain’s Cadbury were arranging a $19 billion deal to create the world’s largest confectionary group. However, it lost ground by the end of the week as weak economic data along with a stronger Dollar weighed on the currency taking it to the 1.6100 levels.
The number of Britons claiming jobless benefit fell by 15,200 in December, higher than expected and by its biggest amount since April 2007. The number of people without a job fell by 7,000, the first quarterly decline since mid 2008, leaving the ILO jobless rate at 7.8%, down from the previous 7.9%.
UK retail sales dropped sharply last month, rising by 0.3% against the expected 1.1% increase, indicating that consumer demand remains sluggish and scaling back some recent optimism about the British economy. The British consumer price inflation rose at its fastest annual pace in nine months in December rising by 0.6% month-on-month and taking the annual rate up to 2.9 %.
Banks to Halt Lending
Chinese regulators have told some banks to temporarily halt lending amid growing fears of asset bubbles and inflation. This has prompted stock market falls around the world as investors worried that China’s tightening could cool its strong growth and dent expectations for the global recovery.
China GDP grows 10.7%
The Chinese economy grew at 10.7% in the fourth quarter of 2009 from the same period a year earlier. The strong growth was accompanied by higher inflation, raising fears that the country may introduce stronger measures to avoid economic overheating.
Dinar at 0.28670
The USDKWD opened at 0.28670 this morning following the performance of the US Dollar last week.