NBK Weekly Money Markets Report

Published October 27th, 2009 - 11:01 GMT

United States
Down with the US Dollar
The US Dollar’s weakening trend has not been halted last week as risk appetite and investor confidence are escalating, driving the “safe haven” currency weaker. The Sterling Pound witnessed major moves, trading in a wide range. After opening the week at 1.6356, the currency started an upward move to a high of 1.6693, and collapsed by more than 3 big figures after the disappointing GDP figure. The Pound ended the week at 1.6306. On a stronger foot, the Euro resumed its unstoppable strengthening, reaching a high of 1.5060 and ending the week at 1.5008. The Japanese Yen however has seen a rebound, most likely driven by temporary adjustments in positions and pushing traders to book their profits. The Japanese currency reached a high of 91.92 and ended trading at 92.06. The Swiss Franc did not fail to gain momentum either, especially after Credit Suisse posted encouraging third quarter profits. The currency reached a low of 1.0045, moving closer to parity with the US Dollar and closing the week at 1.0088.
Banks Earnings
Companies and banks continued posting their corporate earnings for the third quarter of this year, sending positive messages amongst the financial markets, more than one year after the fall of Lehman Brothers. Credit Suisse, Switzerland’s biggest bank by market value, reported a third quarterly profit on gains from trading. Net income was CHF 2.35 billion ($ 2.33 billion), compared with a loss of CHF 1.26 billion in the year-earlier period. The bank, which dodged the worst of the financial crisis and passed up on state aid, benefited mostly from the record-low interest rates that boosted fixed-income revenue to record highs. Deutsche Bank, Germany’s biggest bank, said third-quarter profit more than tripled and beat analysts’ expectations. Net income rose to EUR 1.4 billion from EUR 435 million a year earlier, boosted mostly by record-low interest rates that drove revenue from trading debt, currencies and commodities to the present highs.
Fed Cuts Compensation at Bailed Out Firms
The Federal Reserve announced plans to aggressively regulate compensation and impose steep pay cuts at seven companies that received billions in federal aid. Treasury officials announced that cash salaries paid to the highest-earning executives at these companies will be capped at $500,000, while the group’s total pay level, annualized, will be 50% lower than a year before. Many of the firms, which have together received more than $300 billion in taxpayer aid, issued approving statements, but Bank of America said the ruling will put it at a disadvantage in competing with companies not under this ruling, and claimed the cuts could send talent fleeing. The companies affected are AIG, Bank of America, Citigroup, GM, Chrysler, GMAC and Chrysler Financial.
Producer Prices Declined in September
Wholesale prices in the United States unexpectedly fell in September on lower fuel costs, signaling that inflation remains muted and that the Federal Reserve has a certain flexibility to keep interest rates at the record-low levels as the economy recovers. The 0.6% monthly decrease in the Producer Price Index (PPI) was the second drop in three months and followed a 1.7% in August. Excluding food and fuel, the so-called core PPI declined 0.1% month-on-month.
Housing Data
Existing homes sales surged to their highest level in over two years in September, providing further evidence that the housing market and the overall economy are on the mend. The sales rose 9.4% to an annual rate of 5.57 million units, the highest since July 2007. The number was also higher than analysts’ expectations of a rise to 5.35 million units from 5.09 million in August.


Europe
European Manufacturing and Services Sectors’ Growth Accelerating
Europe’s manufacturing and services industries expanded at the fastest pace in 22 months in October, as evidence mounted that the global economy is forging its way out of the recession. The Purchasing Manager Index (PMI) for the manufacturing sector rose from 49.3 to 50.7, crossing the 50.0 level separating contraction from growth, and thus marking an actual expansion in the manufacturing sector. In a parallel move, the PMI Services also rose from 50.9 to 52.3, showing acceleration in the sector growth. A composite index of both industries rose 1.9 points to 53.0.
German Business Confidence at 13-Month High
German Business Confidence rose to a 13-month high in October, improving the outlook for growth in Europe’s largest economy. The IFO index for business confidence rose to 91.9 in October, from an earlier 91.3 figure, marking the highest reading since September last year. The government, which is spending EUR 85 billion to pull Germany out its recession, raised its economic forecasts, predicting growth in 2010.
United Kingdom
Minutes of 8th October MPC Meeting
The Monetary Policy Committee (MPC) released the minutes of their last meeting held on October 8th 2009. According to the minutes, the Bank of England policymakers voted unanimously this month to leave the size of its asset purchase program unchanged at the current GBP 175 billion. The minutes said that the MPC believed quantitative easing had had a substantial impact on asset prices in the way anticipated by the committee when it launched it back in March. Furthermore, all nine members also voted to hold interest rates steady at the record low of 0.50%, judging that recent economic developments had not been enough to call for any immediate change in the monetary standpoint.
UK Economy Still Contracting
The UK economy contracted unexpectedly in the third quarter of this year, squashing hopes of an end to the downturn, and instead making the current recession the longest on record. The Office for National Statistics said Gross Domestic Product (GDP) fell by 0.4% between July and September, meaning the economy has contracted for six consecutive quarters for the first time since records began in 1955. On a yearly basis, GDP shrank by 5.2%, only marginally better than the record 5.5% annual fall registered in the second quarter. A key factor behind this disappointing figure was the surprise decline in the services sector, which accounts for 76% of the economy.
Global
China Growing at a Fast Pace
China’s economy expanded at the fastest pace in a year, mainly pushed by stimulus spending and record lending  growth. Gross Domestic Product (GDP) rose 8.9% in the third quarter from a year earlier, as announced by the Bureau of Statistics in Beijing. The Country’s rebound has been fuelled by CNY 4 trillion ($ 586 billion) of spending on railways, roads, power plants and public housing.
Oil Setting New Highs
Crude oil continued its upward moves lat week, as signs that the global economy is gathering pace fueled investor optimism. The black gold soared to a high of $82.00 per barrel on Wednesday, the highest since October 2008, and up by almost 140% from the low it had reached since the start of the recession.
Kuwait
Dinar at 0.28565
The USDKWD opened at 0.28565 on Sunday morning.


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