NBK Weekly Money Markets Report

Published September 19th, 2010 - 11:27 GMT

United States Lower US Dollar The announcement of Basel III and the Japanese intervention paved the road for a weaker US Dollar against the majors. The Euro rose during the week to reach a high of 1.3159 and closed at 1.3045. The Sterling Pound rallied to a high of 1.5728 and closed the week at 1.5626. The Swiss Franc started the week at 1.0188, reached a low of 0.9930 to close at 1.0095 on talks that the Swiss National Bank might intervene. The Japanese Yen reached its highest level since May 1995 at 82.85 before closing lower at 85.84 after the nation took action to weaken the Yen and pledged to do so again, if needed, to preserve its export-led recovery. US Turns Up Heat over Renminbi Tim Geithner, US Treasury secretary, encouraged the US Congress to pile pressure on China to force it to allow its currency to rise and said the administration was examining a range of tools to urge Beijing to act. However, during his appearance in front of the Senate and the House of Representatives committees on Thursday, Mr. Geithner stopped short of promising to impose any of the aggressive legal or administrative measures demanded by US lawmakers. His comments came in response to renewed anger in Congress about the effects on the US economy of China’s intervention to hold down the Renminbi. Ahead of the hearing, Beijing hit back at the criticism. Jiang Yu, spokeswoman at the Chinese foreign ministry, said: “I would point out that appreciation of the Renminbi will not solve the US deficit and unemployment problems.” Retail Sales Increase for a Second Month Sales at US retailers climbed in August for a second consecutive month, calming concerns the economy will stumble in the second half of the year. Purchases increased 0.4% following a 0.3% gain in July. Bigger back-to-school discounts, an increase in the number of states offering tax-free holidays and the restoration of extended jobless benefits may have helped boost demand. Consumers’ reliance on incentives is testament to the harm caused by the lack of jobs, one reason why spending may be slow to recover. Producer Prices Climbed for Second Month Wholesale costs in the US rose in August for a second month, indicating demand is strong enough to prevent deflation, or a prolonged drop in prices. The Producer Price Index increased 0.4%, the most in five months and twice the gain in July. A measure excluding volatile food and energy costs climbed 0.1%. Consumer Price Index Consumer prices rose in the US in August for a second month as energy and food prices increased, while other goods and services showed a slight change. The Consumer Price Index rose 0.3% in August higher than market expectations of a drop by 0.2%. While the core CPI, which excludes food and energy prices, was unchanged at 0%. University of Michigan Consumer Sentiment Confidence among US consumers unexpectedly dropped in September to a one-year low signaling that Americans ere less likely to increase spending. The University of Michigan consumer sentiment index dropped to 66.6 in September versus expectations of a rise to 70, from a previous 68.9 in August. Jobless Claims Drop New claims for jobless benefits fell to a two-month low last week, offering a glimmer of hope that the US labor market could be stabilizing. Initial jobless claims fell by 3,000 to 450,000. Economists were expecting an increase after another surprise drop the previous week and the less volatile four-week average of claims is down by 13,500 to 464,750. The number of Americans continuing to claim unemployment insurance also fell, declining by 84,000 to 4.485 million. The fall reflects both a drop in job cuts and also idle workers seeing their benefits expire. Europe Trichet on Basel Rules The ECB President, Jean-Claude Trichet, said officials agreed more work is needed to improve the global banking system after they agreed on the new banking regulation rules. The new requirements agreed, known as Basel III, will require lenders to have common equity equal to at least 7% of assets, up from 2% currently, including a 2.5% buffer to withstand future shocks. Under Basel III rules, banks that fail to meet the buffer would be unable to pay dividends, though not forced to raise cash. The long lead-in time to make the adjustment eased fears that lenders will have to rush to raise capital. "We have transition arrangements which will enable banks to meet these standards while supporting the economy on recovery," Trichet added. Faith in Spain Spain raised nearly €4 billion in a successful government bond sale, the latest sign that the Eurozone’s fourth-largest economy has broken free from the group of so-called “peripheral” European economies regarded by investors as particularly risky. Madrid sold €2.7 billion ($3.5bn) of 10-year bonds and almost €1.3 billion of 30-year bonds, in an auction that saw strong demand and yields below market rates. The sale confirmed that investor appetite for Spanish debt has continued to recover sharply since May and June. One reason for the improvement was that José Luis Rodriguez Zapatero, the Socialist prime minister, launched one of the Eurozone’s harshest austerity plans in May and has so far stuck to his ambitious budget deficit reduction targets. Another was that the European Union’s stress tests for banks in July revealed no unpleasant surprises about the Spanish banking system. German Investor Confidence Fell to 19-Month Low German investor confidence fell more than economists’ forecasts to a 19-month low in September as budget cuts across the Euro region and slowing global growth clouded the outlook for Europe’s largest economy. The ZEW Center for European Economic Research said its index of investor and analyst expectations, which aims to predict developments six months ahead, dropped to minus 4.3 from 14 in August. This is the fifth monthly decline and the lowest since February 2009. European Inflation Eases European inflation slowed in August, led by energy costs, as companies held back from hiring amid signs the recovery is losing momentum. Consumer prices in the 16 Euro nations increased 1.6% from a year earlier after rising 1.7% in July. European companies may find it difficult to pass on higher costs as unemployment near a 12-year high discourages consumer spending and governments cut spending to plug budget deficits. The European Commission reduced its inflation forecast for 2010 on September 13 and European Central Bank council member Yves Mersch said last week that the situation calls for “caution.” United Kingdom Inflation Unexpectedly Exceeds 3% UK inflation unexpectedly exceeded the government’s 3% limit for a sixth month in August as higher costs of items from airfares to food stoked price pressures in the economy. Consumer prices rose 3.1% from a year earlier, the same pace as in July. On the month, prices increased by 0.5%. The persistence of faster inflation may worsen the split on the Bank of England’s Monetary Policy Committee, where Andrew Sentance has argued for an interest-rate increase to tame prices while other officials say more stimulus may be needed. Core inflation, which excludes the cost of food, tobacco, alcohol, and energy prices, accelerated to 2.8% from 2.6% in July. Retail Sales Drop Retail sales unexpectedly fell in August, the first decline since January, led by a drop in sales at book shops, sporting-goods stores and pharmacies. Sales dropped 0.5% from July, when they rose 0.8%. On the year, sales rose 0.4%, the least since April. Jobless Claims Increase Jobless claims unexpectedly increased in August for the first time in seven months, a sign the economic recovery may be faltering just as the government starts the country’s biggest austerity drive since World War II. Claims for unemployment benefits rose by 2,300 to 1.47 million. The job market is showing signs of weakening as the economy braces itself for budget cuts of as much as a quarter from Prime Minister David Cameron’s government, to be outlined next month. Bank of England policy maker Martin Weale said yesterday the public-spending squeeze may weigh on the labor-market recovery and unions are pledging coordinated strike action. Global Japan Intervenes for the First Time Since 2004 The Japanese Yen tumbled from a 15-year high versus the US Dollar after Japan intervened for the first time since 2004 to curb gains that threaten the export-led recovery. Japan’s currency slid the most in 19 months after Finance Minister Yoshihiko Noda said the nation unilaterally sold Yen. The step comes a day after Japanese Prime Minister Naoto Kan won reelection as the head of the ruling party, beating a candidate who had insisted intervention was necessary. Gold & Silver Higher Gold climbed to a record of $1,282.75 as the US Dollar’s drop spurred demand from investors for wealth protection. Bullion, which usually moves inversely to the US Dollar, headed for the biggest weekly gain since May as the Greenback dropped to a five-week low against the Euro. Holdings in gold-backed exchange-traded products reached a record this month as investors sought protection from financial turmoil and the prospect of slowing economic growth. Silver advanced to the highest price since March 2008 at $20.99 an ounce. Kuwait Dinar at 0.28685 The USDKWD opened at 0.28685 on Sunday morning. Rates – 17 September 2010 Previous Week Levels Next Week Range 3-Month Currencies Open Low High Close Minimum Maximum Forward EUR 1.2758 1.2701 1.3159 1.3045 1.2825 1.3120 1.3045 GBP 1.5395 1.5345 1.5728 1.5626 1.5535 1.5740 1.5626 JPY 84.21 82.85 85.93 85.84 85.00 86.50 85.84 CHF 1.0188 0.9930 1.0205 1.0095 0.9955 1.0170 1.0095

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