Uncertainty and Contagion Risk Threatens the Euro Zone

Dollar Gaining

The US Dollar surged against its major counterparts throughout the week as uncertainty and fear of contagion drove investors to sell risky assets. The Euro opened the week high at 1.3759, but dropped to a low of 1.3420, as the yields on Spanish and French bonds surged amid mounting concerns that the debt crisis is spreading. The Euro gained versus the Dollar as the European Central Bank was said to buy Italian government bonds. The EUR closed the week at 1.3521. The Sterling Pound followed suit, as it opened the week at 1.6067, but dropped to a low of 1.5689 following Italy’s record bond yields and bad unemployment numbers from the UK. The currency closed the week at 1.5793. The Swiss Franc has weakened during the week opening at 0.8987, and reaching a high of 0.9235 only to drop back to 0.9081 amid increased expectations that the US Federal Reserve will implement a third round of quantitative easing. The franc closed the week at 0.9169. Finally, the Japanese Yen opened the week at 77.17, range trading during the week and dropping to a low of 76.55, only to move higher during the end of the week to close at 76.88.

Housing Data

Builders took initiative on more homes than expected in October and construction permits climbed to the highest level since March 2010, signs that housing may become less of a laggard in the third year of the US economic recovery. Starts decreased 0.3% to a 628,000 annual rate from September's 630,000 pace, but exceeded expectations of 610,000 starts.

Retail Sales Rising

Retail sales rose more than estimated in October as shoppers gave the economy a boost at the start of the fourth quarter. Sales gained 0.5%, higher than the expected 0.3% mainly boosted by the biggest jump in electronic purchases in two years.

Inflation Surprisingly Dropping

Prices in the US unexpectedly fell in October for the first time in four months, a sign that inflationary pressures may be starting to ease. The consumer price index declined 0.1% from the previous month after a 0.3% rise. The core consumer price index that excludes volatile food and fuel costs rose 0.1%, the smallest gain this year.

Additionally, prices paid to US wholesalers fell in October by the most in four months as the cost of energy and automobiles decreased, pointing to fading inflationary pressures. The producer price index declined a more-than-estimated 0.3% after a 0.8% gain in September. The core index, which excludes volatile food and energy, was unchanged, marking the first time without an increase since November 2010.

Unemployment Claims at a 7-month Low

Fewer Americans filed for jobless benefits last week, an indication that the labor market may be gaining momentum. Applications for jobless benefits decreased by 5,000 claims to 388,000 the lowest level since April, versus market expectations of an increase to 395,000. The number of people still receiving unemployment claims dropped to a three-year low.

Manufacturing in the US

The pace of factory activity in the US region slowed more than expected in November as orders and sales fell. The Philadelphia Federal Reserve Bank said its business activity index fell to 3.6 from October's 8.7, missing economists' expectations for 8.0. A reading above zero indicates expansion in the regions’ manufacturing sector. The risk of a recession in Europe and slowing growth in Asia signal fewer orders for US manufacturers.

Europe

Uncertainty and Contagion Risk Threatens the Economy 

Europe's slow and indecisive actions to fight the debt crisis have allowed uncertainty to fester in financial markets. That has darkened the economic outlook at a time when governments badly need growth to lower their debts. Germany and France may surrender to the debt crisis in the fourth quarter as growth falters across the Euro region, their largest export market. The Spanish and Belgian economies stalled in the three months through September, while Portugal has contracted for a fourth straight quarter. Additionally, Spain and even France, one of the continent's core economic engines, were forced to pay sharply higher interest rates to raise cash to fund government spending. Meanwhile, Italy’s borrowing costs last week surged above 7%, the level that triggered bailout requests from Greece, Portugal and Ireland.

ECB President Speaks

European Central Bank President Mario Draghi called on Friday for the Euro zone's EFSF rescue fund to be made fully operational as soon as possible, showing exasperation at the slow progress so far. In a speech to the European Banking Congress in Frankfurt, Draghi pointed out that EU leaders decided to launch the EFSF more than a year and a half ago, subsequently agreeing to make the full EFSF guarantee volume available. In addition, the leaders decided to leverage the resources of the fund four weeks ago. Draghi repeated that downside risks to the economic outlook in the euro area have increased and said the weaker degree of activity would moderate price, cost and wage pressures.

Industrial Production

European industrial production declined the most in 2½ years in September, led by capital and consumer goods, as the sovereign-debt crisis pushed the economy toward a recession. Production in the 17-nation Euro area dropped 2% from August, when it rose 1.4%. Meanwhile economists expected a drop of 2.1%.

German GDP

German economic growth rebounded in the third quarter on stronger consumer spending, even as the region braces for a recession sparked by an escalating sovereign debt crisis. Gross domestic product in Germany, Europe’s largest economy, rose 0.5% from the second quarter, when it increased 0.3%.         

Confidence Dropping in Germany

German investor confidence fell to a three-year low in November on concern that the sovereign debt crisis will push Europe’s largest economy into recession. The ZEW economic index of investor and analyst expectations, which aims to predict developments six months in advance, declined to -55.2 from -48.3 in October, the lowest since October 2008. Expectations in the market was for a drop to -52.5.

United Kingdom

Unemployment Rate Soars

Unemployment in the UK soared during the third quarter, driven by the number of young people seeking jobs, which rose above the 1 million mark for the first time in 19 years. This in turn raised the unemployment rate to reach 8.3%, the highest in 15 years. Unemployment benefits rose by 5,300 people last month. Although less than the forecasted 21,000, the number still adds pressure on Prime Minister David Cameron to do more to boost the economy that is at risk of sliding back into recession as Europe’s escalating debt crisis tremble financial markets.

Bank of England may Inject More

The Governor of the BoE have warned from the dangers and uncertainty that is posed by Europe’s debt crisis, signaling that the central banks’ officials may be ready to add more stimulus as soon as next month in order to protect the UK from further turmoil. The Bank of England cut its growth and inflation forecasts, saying output is likely to remain flat until the middle of 2012. Sir Mervin King, the BoE Governor, has raised the prospects of a double-dip recession, as the Eurozone crisis has left UK banks unable to raise the funding they need to make loans to businesses.

Japan

BoJ Press Conference

The Bank of Japan cut its economic assessment as Governor Shirakawa has called the European Debt Crisis the “biggest danger for the nations export-led recovery.” The BoJ has left its asset-buying fund unchanged at 20 trillion Yen and stated that Japans economic activity has continued picking up but “at a more moderate pace,” downgrading its evaluation from last month.

Kuwait

Kuwaiti Dinar at 0.27595

The USDKWD opened at 0.27595 on Sunday morning.