NBK Weekly Money Market Report

Published November 2nd, 2009 - 03:08 GMT

United States
Greenback Finds Support
The weakening US dollar trend seen over the previous weeks lost its momentum this week. The US dollar was able to partially halt its losses against the major currencies. However, Thursday’s GDP numbers showing growth in the American economy spurred a return of risk appetite, pushing the greenback lower and equities higher. Sterling pound traded narrowly around 1.6350 during the first days of the week before rallying back to a high of 1.6604 on Thursday after the US GDP figures; the Pound closed the week at 1.6452 on Friday. In contrast, the Euro recorded a negative week against the US dollar due to cross-currency trading. The European common currency started the week at 1.4985, reached a week high of 1.5063 on Monday then slid progressively to below 1.47 before recovering part of its losses towards the end of the week. The Yen was stronger during the week, starting at 92.06 and then closing at 91.09 on Friday. In general, risk aversion and equity markets remained the major players in the performance of the US Dollar.
Consumer Confidence Drops
Consumer confidence unexpectedly fell for a second month in October reaching a level of 47.7, down from 53.1. Expectations were towards the higher level of 53.5. The low observation reinforced the views of Federal Reserve policy makers who say household spending will be restrained by rising unemployment. Healthcare reform concerns and rising fuel costs contributed also to the monthly drop. In parallel, the University of Michigan Survey, another consumer confidence indicator, came also at a lower-than-expected figure of 70.6, down  from 73.5 in September.
Mixed Housing Data
According to the Commerce Department figures, new-home sales dropped 3.6% to a 402,000 annual pace, below the most pessimistic economist’s forecasts. The unexpected fall in September came as the end of tax credit for first-time homebuyers approached, highlighting the importance of government aid to the economy recovery. However, home prices measured by the S&P/Case-Shiller recorded an improvement, bolstering again the case that an economy recovery is at hand. The index climbed 1% in August from a month earlier after a 1.2% hike in July. On a year-on-year basis, home prices are down -11.32%, versus forecasts of -11.90% and a previous month level of -13.30%.
US Economy Grows Again
After 4 consecutive negative quarters, the US economy returned to growth in the third quarter as government incentives spurred consumers to spend more on homes and cars. The annualized figure for the quarter came at 3.5%, up from a -0.7% level in the previous quarter and slightly above the forecasted 3.2%. The report said that growth in consumer spending, which accounts for almost 70% of the US economy, “largely reflected” an increase in purchases of automobiles attributable to the government’s cash-for-clunkers plan. Excluding sales, production and inventories of automobiles, the economy grew 1.9%. Consumer spending on smaller items and services also picked up, as did business investment in equipment and software.
Consumer Spending Falls in September
Again, as the effects of government stimulus programs started to wane, the US consumer spending dropped in September. Personal spending fell by -0.5%, or $47.2 billion, after 4 prior monthly hikes. The data comes in line with the analysts’ forecasts, which highlighted that the expiration of the cash-for-clunkers car rebate scheme would hit spending.

Deflation Shifting Slowly Towards Inflation
On a year-on-year basis, the Eurozone consumer prices estimates were negative at -0.1%, in line with market expectations, after the -0.3% level in September. Inflation remaining very weak in the Eurozone makes it easier for the European Central Bank to keep interest rates at a record low for an extended period. Food and beverages, hotels and restaurants were among the main contributors to the improving figure.
Unemployment Steps Higher
The total number of unemployed rose by 184,000 to 15.3 million in September, lifting the jobless rate from 9.6% in August to 9.7% in September. This level represents the highest rate since January 1999. However, analysts highlighted that the pace is still below the US unemployment pace, as European employers have not slashed jobs as aggressively as their US counterparts.
United Kingdom
House Prices Still Rising
The Nationwide House Price index rose by 0.4% in October, down from the 0.9% seen in September and the 1.4% rate seen in July and August. The rise contributed to the first year-on-year increase since March 2008. This would be the sixth consecutive monthly hike in the UK, but slower relative to the rapid pace seen over the summer.
Bank of Japan Will Stop Its Debt Buying Program
The Bank of Japan (BoJ) declared it would let its programs of buying corporate debt expire at the end of the year, in line with central banks around the world that started phasing out their emergency measures. The BoJ said in a statement that it will end purchases of commercial paper and corporate bonds from lenders as scheduled, while extending collateral-backed lending one last time through March 31. Finally, BoJ’s overnight target rate remains at 0.1%.
Industrial Output Achieves its Seventh Gain
Industrial output rose 1.4% in September after a previous climb of 1.6% versus a market consensus of 1.0%. The government spending globally helped the industry, leading to a seventh consecutive increase in production. Companies plan to increase production further in October and November, supporting the recovery from the record export collapse in the first quarter.
Unemployment Falls Unexpectedly
Unemployment in Japan fell in September to 5.3% from 5.5% in August, better than the forecasted figure of 5.6%. This fall to a 4-month low adds to the signs that a recovery in the world’s second largest economy is already spreading to consumers.
Deflation Remains a Theme
Recent consumer prices signaled that deflation is likely to remain a drag on the economic recovery, resulting in further pressure on the Bank of Japan. Core consumer prices excluding fresh food dropped -2.3% in October from a year ago while the headline inflation came at -2.2%. Previous month’s observation were at -2.4% and -2.2% respectively. Declining food, clothes and energy prices relative to a year ago were the main factors in the negative observation. Excluding the volatile prices of food and energy, core inflation is at -1.0%.

Saudi Arabia Drops Benchmarking to WTI
Saudi Arabia declared that it will no longer use the West Texas Intermediate (WTI) oil contract as the main benchmark for pricing its oil, causing a serious blow to the New York Mercantile Exchange (NYMEX). The move comes after the growing discontent of Riyadh and its US refinery customers with WTI after it became to a certain extent separated from the global physical oil market. Starting January, Saudi Arabia will base the price of oil for its US customers on a new index developed by Argus, the London-based oil pricing company.
Dinar at 0.28615
The USDKWD opened at 0.28615 on Sunday morning.

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