The US Dollar weakness continued last week as weak numbers in the United States held the currency down until Friday where it gained back some of its losses. The Euro remained strong, trading above the 1.35 barrier throughout the week and then falling to 1.3495 on Friday. The Sterling was able to remain above the psychological barrier of 1.5000, ending the week at 1.5180. The Japanese Yen was much stronger against the US Dollar, reaching a low of 94.74 on Friday but closing at 95.21. The Swiss Franc range traded between 1.10 and 1.12, and the Australian Dollar hovered around the 0.75 level.
Bernanke’s Speech on Stress-tests
Federal Reserve Chairman, Ben Bernanke, said last Monday that the stress tests already appear to be helping banks gain access to private capital, a key element in economic recovery. He also said “the initial indications are encouraging, many banks are well ahead in finding private-sector options for increasing their common equity and several have announced plans for new equity issues”. On the state of the US economy, Mr. Bernanke added the Dollar will retain its dominant role as the world’s reserve currency and that the Fed will assure the strength of the US Dollar and keep inflation at bay by raising interest rates when the time is right.
Obama in Action
Major credit card issuers, such as Capital One Financial, Bank of America, Citigroup, and American Express, face huge possible credit-card losses and are consequently taking measures to generate more revenues. The measures were met with fierce opposition from President Barrack Obama as he presses for legislation imposing new restrictions on credit-card fees, interest rate changes, disclosure documents, limits for students, and stronger monitoring. Mr. Obama said that “we have been complicit in these problems, but these practices, they have only grown worst in this recession, when hardworking Americans could afford them least”.
Chrysler and General Motors Eliminating Dealerships
Chrysler, which filed for bankruptcy on April 30, is facing pressure to cut struggling dealerships with low sales volumes. The automaker wants to eliminate 789 of its 3,200 dealerships, as only 50% of them account for 90% of the company’s sales in the US. Such move could cause devastating effects in cities and towns across the country as thousands of jobs will be lost. Furthermore, General Motors announced it plans to cut 1,100 US dealerships as part of its latest cost-cutting effort to avoid a bankruptcy filing.
Libor Prices
The cost of borrowing in US Dollar between banks fell the most in eight weeks, as government and central bank efforts to unlock credit markets showed signs of recovery and deposits at financial institutions grew. The 3-month US Dollar Libor fell around 20 basis points to 0.82% last week, after having reached the high of 4.82% in October following the collapse of Lehman Brothers Holdings. The drop coincided with a surge in customer deposits at US banks, which jumped almost $400 billion in the past six months, reducing demand for loans in the interbank market.
Oil Prices and Commodities on the Rise
Oil prices rose above $60 a barrel for the first time in six months last week, boosted by signs of economic recovery, a weaker US dollar and growing investor appetite for riskier assets such as commodities. Gold prices hit a high of $930 per ounce. Raw material prices rose as well, with sugar rising to a 3-year high and wheat hitting its highest price since January.
Mixed Data
Figures in the US continue to weigh on the US economic outlook as more weak numbers were released last week. The US trade deficit in March came out at $27.6 billion, better than the anticipated $29 billion, due to a surprise demand for US goods. Nonetheless, retail sales declined in April as the labor force dashed hopes that consumer spending might be finally stabilizing. Sales declined by 0.40% in April against flat expectations. The results illustrated that there is still no evidence of an actual recovery as consumer spending accounts for almost 70% of the US GDP. As for the labor market, new jobless claims climbed by 32,000 to 637,000 last week, worse than economist expectations, and largely attributed to auto-related job cuts due to the shut down of Chrysler plants. The inflation report revealed that prices were almost flat in April, but recorded their largest 12-month drop since 1955. According to the Labor Department, the consumer price index (CPI) dropped by a mere 0.02% in April, after falling by 0.10% in March, and by 0.70% on a year-on-year basis. Core prices, which exclude volatile food and energy prices, rose by 0.30%, higher than the prior 0.20%. Finally, consumer confidence rose to its strongest since the failure of Lehman Brothers, according to the Reuters/University of Michigan surveys of consumers. The report reflected a reading of 67.9 in May, up from April’s 65.1.
Europe
Trichet on the Economy
The Euro reached a high of 1.3720 against the US Dollar following comments from ECB President Trichet signaling that the global downturn has bottomed out with some large economies able to put the recession behind them already. However, he added that the economic activity in the Eurozone will continue to be very weak in 2009 and will gradually recover in 2010.
Contraction in the Eurozone
The Eurozone economy shrank more than expected in the first quarter, led by a 2.5% drop in output in Germany against an expected 2%. However, economists expect this quarter is likely to be the worst of the recession. The German GDP contracted by a larger than expected 3.8% in the first quarter of 2009 led by a sharp decline in exports and investments. Spain’s economy shrank at its fastest rate in nearly 40 years as unemployment surged. Additionally, industrial output in March revealed further deterioration as it posted a 2.0% monthly decline and a 20.2% decline versus the previous year. Euro-zone inflation in April was unchanged at 0.6%, in line with expectations.
United Kingdom
The Sterling
The Sterling Pound climbed to a 4-month high last week reaching a high of 1.5350 as economic data in the UK added to recent signs that the downturn has reached a bottom.
Mixed Numbers
The UK housing market survey came in stronger than expected with house prices slowing their downward trend in March, to fall by 3.8% compared with a decline of 6.4% in the last quarter of 2008, as mortgage rates fell sharply and credit conditions eased significantly. Manufacturing output fell 0.1% in March, beating market consensus for a drop of 0.8%. Additionally, UK retail sales rebounded at their fastest pace in three years in April. However, the labor market continues to deteriorate with the ILO unemployment rate jumping at its fastest rate since 1980’s from 6.3% in last quarter of 2008 to 7.1% in first quarter of 2009.
Japan
The Yen
The Japanese Yen was among the best performers last week as it reached an eight-week high of 94.75 against the US Dollar as a slide in Asian markets prompted investors to reduce bets on risky assets and liquidate their long Yen positions.
Kuwait
Dinar at 0.29000
The Central Bank of Kuwait fixed the USD/KWD exchange rate this morning at 0.29000.
The World
China Slips Deeper
China fell deeper into deflation in April for the 3rd consecutive month as consumer prices fell 1.5% in the year to April. Additionally, Chinese exports as well as industrial production fell more steeply than expected in April, overshadowing strength in capital spending and raising concerns over whether a recovery is under way for the world’s third-largest economy. Finally, foreign direct investments in China fell for a seventh month from a year earlier as companies cut spending. Investment dropped by 22.50% to $5.89 billion in April.
Rates
17-May-09 Spot Rate One Week Range 3 Month Rate
Currencies Closing Rate Minimum Maximum Forward
EUR 1.3495 1.3270 1.3740 1.3485
GBP 1.5180 1.4770 1.5780 1.5175
JPY 95.21 88.60 99.70 95.10
CHF 1.1213 1.0830 1.1620 1.1195
