Weekly Financial Report – IBQ

1788

Steady Week for the US Dollar
In a relatively quiet week, the US Dollar range traded against the major currencies, mainly driven by some economic indicators. The Euro traded between 1.3750 and 1.4000, and the Sterling between 1.62 and 1.65.  The Japanese Yen shortly dipped to the 95 level, but came back on Friday to the 97 area. The Australian Dollar moved around the 0.80 level, with a low of 0.7848 and a high of 0.8119. Finally, the Swiss Franc jumped to the 1.09 level from 1.07, due to fears from further intervention from the Swiss National Bank. Commodities were also quiet, as oil settled close to the $70 level, and gold prices closed at $934.

Obama’s Reform
US President, Mr. Barack Obama, announced some new reform plans last week as he is fighting to improve the conditions of US citizens.
First, he raised the issue of the debate over healthcare reform as his number one domestic priority. Mr. Obama plans to include a public option among the competing healthcare plans, targeting insurance companies, which have been “cherry-picking” patients in order to maximize their profit margins. He clearly stated that this reform is a “necessity not a luxury”, and that “healthcare reform is the single most important thing we can do for America’s long term fiscal health”.
Second, President Obama announced his plan to recraft US financial regulation, vowing to halt “a cascade of mistakes over the course of decades” that eroded banks and market oversight. The plan will force large financial firms to boost their capital cushions and regulate over-the-counter derivatives and securitized instruments. Furthermore, he plans to give the Federal Reserve a primary responsibility for averting future financial crises, by acting freely against any systemic risk.

Economic Indicators
The Philadelphia Fed’s business index, which has been one of the best regional Fed indices in tracking national conditions in the factory conditions historically, moved up sharply in June to a level that implies stability. The index jumped by 20 points to reach -2.2 in June. Industrial production dropped by 1.10% in May, pushing the annual production down by 13.40%. The drop was due to a sharp drop in output of motor vehicles and parts as plants shut down early for annual retooling and Chrysler filed for bankruptcy.
Initial jobless claims remained unchanged slightly above the 600,000 barrier, while continuous claims increased to 6.687 million.
On the housing sector, housing starts for the month of May bounced back considerably with 532,000 units, a 17.20% increase, from a previous -12.90% drop and 454,000 units, mainly driven by a large increase in multifamily starts. This was also reflected in the 4% increase in building permits.

The Inflation Report
The US inflation report confirmed that price pressures remained well contained. The consumer price index (CPI) rose by 0.10% in May, below the expected 0.30%, and the annual inflation rate fell to its lowest since 1950 to -1.30%. Core prices, which exclude volatile food and energy prices, also rose by 0.10% in May, leaving the annual rate at 1.80%. On the producer level, the PPI rose by 0.20% in May, but dropped by 5.00% on an annual basis, with both figures coming below the expected rates. Core producer prices dropped by 0.10% in May, and increased by 3.00% annually.

Europe – Quiet Week
The Eurozone inflation fell to almost zero as per the European Union’s statistical office, with analysts expecting negative prices from June onwards. Furthermore, employment in the 16-country fell by a record 1.22 million jobs in the first quarter of 2009, pushing the unemployment rate to 9.20% in April, its highest level in 10 years. The consumer price index came at +0.10% in May and was unchanged year-on-year. Core prices, which exclude volatile food and energy prices, were flat in May and increased by 1.50% on an annual basis. The real estate crisis continued in Spain, as the number of houses sold fell by a record 47.60% in April compared to a year earlier.

United Kingdom – Weak Data
According to the Office for National Statistics, retail sales in the UK surprisingly fell in May by 0.60%, well below the expected +0.30%. The figure pushed the Sterling pound lower, and raised doubts over the potential near-term recovery in the UK economy. Looking at the employment report, the jobless rate has hit a 12-year high of 7.20% during the three months to April. The figure, which came out at 2.26 million unemployed, reflected an ease in the pace of decline. But, despite the recent slowdown in pace, economists expect unemployment to reach the 3 million barrier next year.

MPC Minutes
The Monetary Policy Committee (MPC) members voted to keep interest rates at a record low of 0.50% and maintain the bank’s £125 billion quantitative easing programme unanimously. The vote came out at 9 to 0, as policymakers acknowledged that recent data had been encouraging but the gloomy projections were still there.

Japan – Interest Rates Unchanged
The Bank of Japan left interest rates unchanged at 0.10%, as widely expected, but it has raised its assessment of the domestic economy for the second consecutive month. The BoJ governor, Mr. Masaaki Shirakawa, said that the Japanese Yen benefited from the improvements in exports and growth in output had fuelled hopes that the worst of the recession is over.

Kuwait – Dinar at 0.28780
The USD/KWD opened at 0.28780 on Sunday morning, following the Dollar performance during the week.

Rates

19-June-09 Spot Rate One Week Range 3-Month
Currencies Closing Rate Minimum Maximum Forward
EUR 1.3946 1.3745 1.4350 1.3950
GBP 1.6509 1.6210 1.6775 1.6525
JPY 96.28 93.50 99.80 96.00
CHF 1.0816 1.0590 1.1100 1.0775

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