weekly money markets report
US
The US Dollar Recovers…
The US dollar recovered against most major currencies after a weak start of the week and a consecutive 6-week drop, amid concerns that problems in the US subprime mortgage and credit markets could spread to other economies. Investors risk appetite fell down and carry trades unwinding was heavily seen, especially in Asian markets, in which the low-yielding Yen is sold to fund the purchases of riskier, high-yielding assets, a fact that helped the US Dollar. The US Dollar pulled away from a record low against the Euro to close the week at 1.3638. The biggest move was against the Sterling with a drop from a 26-year high of 2.0650 to 2.0258. The Australian Dollar also dropped from multi-year highs of 0.8850 to end the week at 0.8525. On the other side, the Japanese Yen rose against all major currencies to levels not seen for many months now, whereby it closed the week at the 118 level, mainly due to carry trades unwinding.
Strong Growth
The US growth figures for the second quarter of the year came out much better than the previous quarter and slightly above the market’s consensus. Indeed, the GDP data reflected a growth of 3.4%, compared to the very low prior 0.7%, and the expected 3.2%. As a result, the US dollar continued its end of week rally to close the week much stronger. Furthermore, the core personal consumption expenditure (PCE) came at a surprisingly low 1.4% annual rate.
Housing Market Slowing Down
Existing home sales figures confirmed once again that the US housing market is slowing down at a moderate pace. The latest report has shown that sales in the month of June dropped by 3.8%, with 5.8 million units, lower than the previous 5.99 million and the expected 5.84 million. New home sales were also lower with 834,000 units sold.
Economic Indicators
Durable goods orders rose by 1.4% in June, reversing the previous 2.4% decline, but came out below the expect 1.8%. The University of Michigan sentiment survey rose in July, with a reading of 90.4 way above the prior 85.3, but below the expected 91.2. Finally, weekly jobless claims reported 301,000 claims still in-line with the year average.
The Subprime Market
The subprime market issue heavily affected the US stock markets and there are some fears that it might spill over other economies. In fact, European and Japanese stock markets were also hit. Mr. Hank Paulson, the US secretary, has sent a “wake-up” for investors in an interview on television. He believes that more “discipline” should be used in the markets and that “we are currently seeing a reassessment of risk and that is leading to a market adjustment”, adding that it was “healthy” that risk was being re-priced.
New Zealand Hikes Rates
New Zealand’s central bank raised interest rates by 25 basis points to 8.25%, the highest rate in the industrialized countries, in response to the inflationary pressures of rising food and energy prices and the tight labor market, but it said that it did not expect to raise further amid signs of an easing in domestic borrowing. As a result, the New Zealand Dollar or Kiwi dropped from the multi-year high it has lately reached.
EUROPE
Quiet Week…
The Euro started the week strongly reaching record highs against the US Dollar of 1.3850, but ended up the week much weaker at the 1.36 area. Few numbers came out last week, first with Germany’s IFO business confidence index falling to 106.4 in July, from 107.0 in June, and in line with expectations. Industrial orders rose by 1.7% in May, reversing the previous drop by 0.4% and above the expected 1.1%. Annually, orders grew by 9.1%, below the previous 12.2%.
UK
Quiet Week...
A quiet week in the UK in data, but the Sterling surprisingly dropped by 4 big figures from 2.06 to 2.02.
JAPAN
The Yen Below 120…
The Japanese Yen rallied last week amid carry trades unwinding and reached a 2-month high of 118.15. Furthermore, cross-trading was very active with the Euro and the Sterling dropping substantially against the Yen.
KUWAIT
An Active KD…
The Central Bank of Kuwait surprised the market last Wednesday with a 1.7% revaluation of the Kuwaiti Dinar to 0.28195 – 0.28205. And on Thursday, the Dinar was slightly devalued to end the week at 0.28225 – 0.28235.
