NBK Weekly Money Markets Reports dated 17-01-2010
A Mixed Dollar Performance
The US Dollar performance was mixed during the week against the major currencies. The Euro reached a high of 1.4579 and lost ground to close the week at a low of 1.4390 as President Trichet's comments supporting the Fed's strong dollar policy coupled with worries over the Greek debt situation weighed on the currency. The Sterling Pound reached a high of 1.6353 and a low of 1.6060 before closing the week at 1.6270. The Japanese Yen reached a low of 92.66 against the US Dollar and closed the week stronger at 90.80. Finally, the Swiss Franc traded between 1.0129 and 1.0285.
US Banking Levy Expected to Raise $90 Billion
Barack Obama announced a sweeping levy on about 50 financial institutions that will raise an estimated $90 billion to reduce the federal debt. The president said the bailout aid had been “distasteful, but necessary,” and it is now time for repayment. He said that the new levy was not a punishment, but rather a preventative measure, and banks could well afford the fee, citing “massive profits and obscene bonuses.” Mr. Obama urged Wall Street to roll back executive bonuses to cover the cost. “We want our money back, and we’re going to get it,” he said.
This comes a day after four top Wall Street chief executives appeared before a Financial Crisis Inquiry Commission to offer a mixture of contrition and defense of their actions in the run-up to the crisis that began in 2008. The levy targets banks with more than $50 billion in assets, and levies a fee of about 15 basis points on covered liabilities; insured deposits are subtracted because banks are already charged by the Federal Deposit Insurance Corporation.
The Consumer prices index rose less than forecast in December, indicating the economic recovery is starting to breach inflation. The CPI rose by 0.1% after reaching 0.4% in November. The core CPI, which excludes food and energy prices, came out at 0.1% as well.
Weaker-than-expected numbers were released in the US last week, raising concerns about the outlook for the economy’s recovery. The US trade deficit widened in November growing by 9.6% to $36.4 billion, as a greater domestic appetite for industrial supplies and consumer goods has picked up substantially. Retail sales unexpectedly fell in December as consumers spent less on vehicles and a number of other goods during the holiday shopping month, raising concerns about the durability of the economic recovery. Sales dropped by 0.3% last month for the first time in three months. Initial weekly jobless claims climbed more than expected last week rising 11,000 to 444,000, higher than the expected 437,000. Finally, the University of Michigan consumer confidence report showed that confidence among US consumers rose to 72.8 from 72.5, signaling that a lack of hiring might hold back spending.
Manufacturing and Industrial Numbers
UK manufacturing unexpectedly stalled for a second month in November, a sign the economy is struggling to shake off the longest recession on record. Factory output stayed unchanged from October, while overall industrial production increased as oil and gas output jumped. Overall, industrial production, which includes utilities and mining, rose 0.4% for the month.
ECB Holds Rate at 1%
The European Central Bank kept its main interest rates on hold at a record low of 1%, for the eighth month in a row as widely expected. The ECB also kept its overnight deposit rate, which acts as a floor for money markets at 0.25% and left its marginal lending rate at 1.75%. In a speech following the decision, the ECB President, Jean-Claude Trichet, reiterated the importance of a strong US Dollar which causing the Euro to lose ground against other major currencies.
The Eurozone Inflation
Higher fuel prices drove Eurozone inflation higher in December as expected but core inflation remained flat. Consumer prices in the 16 countries rose 0.9% year-on-year in December after a 0.5% gain in November. On a month-on-month basis, prices rose 0.3%. Core Inflation came at 0.4% in December, unchanged from November and October. Finally, German inflation accelerated in December to the fastest in eight months on surging energy costs. The inflation rate rose to 0.8% percent.
Japan Machine Orders Plunge
Japan’s reliance on exports deepened after machinery orders from service companies plunged the most in more than two decades in November. Orders from non-manufactures dropped 10.6% to 380.7 billion yen ($4.15 billion, the lowest since May 1987.
Australia’s jobless rate dropped to an eight-month low raising expectations for an interest rate hike in February by the Royal Bank of Australia. Unemployment rate fell to 5.5%, down from a revised 5.6% in November and employment rose by 35,200 in December.
Dinar at 0.28640
The USDKWD opened at 0.28640 this morning following the performance of the US Dollar last week.