Weekly Money Markets Report dated 30-05-2010
Heightened risk aversion remains the dominant theme in the global financial markets with the US Dollar continuing to benefit as the safe-haven currency. The Euro reached a low of 1.2152 during the week, dropping from a high of 1.2559 on Monday, as contagion fears along with more austerity measures to be taken in the eurozone continue to pressure the currency. The Sterling range-traded between a high of 1.4610 and a low of 1.4255. The Japanese Yen weakened last week to reach a low of 91.40 against the US Dollar from 89.20 levels earlier in the week, as weaker-than-expected data weighed on the currency. The Swiss Franc traded between a high and low of 1.1697 and 1.1476 respectively. Finally, the Australian Dollar reached a high of 0.8550 on Friday after being hardly hit earlier reaching a low of 0.8065.
US GDP Slows in Q1
In the first quarter, the US economy grew at a slightly slower pace than previously estimated. The gross domestic product expanded at a 3% annual rate, below its initial estimate of 3.2% and against expectations for an upward revision to 3.4%. However, the recovery still appears to be solid, suggesting the economy could withstand fallout from the European debt crisis.
The number of US workers filing new applications for unemployment insurance fell slightly less than expected last week, pointing to a gradual improvement in the labor market. Initial jobless claims fell to 460,000 from 474,000 the previous week and versus an expected decline to 455,000. Analysts argue that this number must fall below 450,000 to signal sustainable private payroll growth.
The housing market in the U.S. showed some improvement in April as last minute buyers rushed to close contracts before the expiry of the government’s homebuyer tax credit. Sales of previously owned homes rose 7.6% to an annual rate of 5.77 million units, the highest since November 2009. In parallel, sales of newly built U.S. single-family homes rose faster than expected in April to their highest level in nearly two years. Sales jumped 14.8% to a 504,000 unit, the highest since May 2008.
The Conference Board’s consumer confidence increased sharply in May, rising to its highest level since April 2008 at 63.3 from 57.7 in April. At the same time, the University of Michigan Consumer Sentiment Index increased to 73.6 compared to 72.2 in April, against expectations of a higher increase to 73.3.
Italy Approves Austerity Plan
In an effort to prevent contagion from the Greek debt crisis, Italy’s cabinet approved an austerity package last week to cut its deficit by 25 billion Euros in 2011 and 2012 aiming to lower the deficit to 2.7% of GDP from 5.3% in 2009. The International Monetary Fund welcomed Italy’s commitment to reduce its fiscal deficit and said containing the public wage bill should be the focus of cost-cutting measures.
Spain Downgraded by Fitch
Fitch downgrade Spain’s credit rating last week, rekindling concerns about a sovereign debt crisis in the eurozone. The rating agency had cut Spain’s credit rating by one notch to AA-plus from AAA, saying the country’s economic recovery will be “more muted” than the government forecast due to its austerity measures.
UK Consumer Morale Falls
British consumer confidence fell for the third month in a row in May, as people grew more fearful about the economic outlook and the health of their finances. The consumer confidence index slipped to its lowest level since December to -18 from -16 the previous month.
British retail sales suffered an unexpected hit in May after shoppers were turned off by poor weather in addition to the biggest price rises in two years. Sales tumbled to 14-month low to -18 in May from +13 in April, representing the biggest one-month drop in the index since 2005.
Deflation remains the main theme in the World’s second largest economy; Japan’s core consumer prices marked their 14th straight month of annual declines in April. The Consumer Price Index (CPI) fell by 1.5% in April compared to a 1.2% decline in March, led by the government’s policy to cut public high school tuition fees.
The jobless rate in Japan rose slightly from 5.0% in March to 5.1% in April, the first time in four months, a sign that the job rebound might be moderate.
Dinar at 0.29125
The USDKWD opened at 0.29125 on Sunday morning.