Dollar strengthens amid quiet trading NBK MONEY MARKETS REPORT

Last week, the US dollar traded on a strong footing against most of its majors on the back of better US data, supporting rate hike expectations in the market. Expectations of a rate hike in December remained supported above 70 percent as the US economy continues to release positive figures across all sectors, especially manufacturing. Meanwhile, interest rate differentials continue to dictate the market as monetary policy divergence between major central banks and the Fed are expected to widen further under the current economic conditions.

The dollar Index opened the week at 98.695 and quickly jumped to a high of 99.119 amid a better than expected manufacturing PMI figure. However, the index lost that momentum as consumer confidence disappointed pushing the dollar to retreat to a low of 98.335. The currency regained its momentum and closed the week at 98.340.

The euro traded in a volatile manner last week. The currency initially dropped to a low of 1.0851 despite positive data from the bloc’s major economies. The single currency reversed its losses and surged to a high of 1.0946 as manufacturing orders indicated higher price pressures, reducing the possibility of further stimulus from the ECB in their upcoming meeting. The Euro closed the week at 1.0981.

In the UK, “Brexit” worries continued to dictate the performance of the sterling last week. The pound opened at 1.2234 and dropped to a low of 1.2083 as comments from the British Chancellor indicated that the exit from the EU might be worse than previously expected. Yet, the cable was able to recoup some of its losses as comments from the BoE governor indicated that the central bank might not cut rates to curb risks of imported inflation resulting from a lower currency. The currency continued to drop despite data that showed that the growth trend in the UK is still not affected by “Brexit.”

In Japan, the Japanese yen continues to lose its footing against the greenback as expectations of further efforts from the BoJ to push prices higher were fuelled by disappointing CPI figures released last week. The USD/JPY reached a 3-month high at 105.42, despite comments from BoJ’s Kuroda that the bank might refrain from any additional stimulus in its next meeting. The currency closed at 104.69.

On the commodities side, oil prices edged lower on Friday and were set for the biggest weekly losses in six weeks over doubts about whether OPEC and non-OPEC oil producers will be able to agree on an output cut big enough to curb a global glut that has weighed on markets for two years. Disagreements remain over which members should be exempt from a curb to reduce output to a range of 32.5-33 million barrels per day. Brent crude futures were down 16 cents at $50.31 a barrel. While, US West Texas Intermediate crude was down 27 cents at $49.45 a barrel, also on track for its biggest weekly loss in six weeks.

Manufacturing in the US

Flash manufacturing PMI October figure in the US came stronger than expected at 53.2 versus 51.6, indicating that the manufacturing sector in the US is in expansionary mode. Whereas, the 50 level separates expansion from contraction in the index. The current October figure is the highest since October 2015, fuelling further the possibility of a FED rate hike in December.

Consumer Confidence retreated after twomonth gains to 98.6 indicating the perception of an expanding economy in the shortterm but at a slower pace. Furthermore, consumer’s evaluation of “good” business conditions decreased from 27.7 percent to 26.2 percent while those saying conditions are “bad” increased from 15.8 percent to 17.7 percent. Consumer’s assessment on the labor market had the same trend, as surveyed consumers stating jobs are “plentiful” fell from 27.6 percent to 24.3 percent, while those claiming jobs are “hard to get” fell from 22.3 percent to 22.1 percent.

New home sales in September continued to grow from 575K to 593K but lower than the expected 601K. The median price of new homes sold in September was $313,500, 6.7 percent higher than in August, and 1.9 percent higher than a year ago which translated into the less-than-expected data. While, pending home sales edged up by 4 percent from -2.5 percent to 1.5 percent in September following August’s notable dip and sales are at their fifth highest level over the past year. The data indicates that record low mortgage rates continue to support sales and prices in the sector.

Orders for US business equipment fell in September by the most in seven months, indicating corporate investment is having trouble gaining traction. Durable goods orders excluding transportation equipment, which are often volatile from month to month, climbed 0.2 percent after a 0.1 percent gain. Bookings for military capital equipment decreased 7.7 percent, and demand for non-defense durable goods rose 0.7 percent. Durable goods inventories crept up 0.1 percent for a second month, while unfilled orders for non-defense capital goods excluding aircraft rose 0.2 percent.

Durable Goods excluding transportation rose by 0.2 percent from the previously -0.2 percent in August, higher than initially expected. The data shows rising purchase orders, which might stimulate further growth in the manufacturing sector.

Europe & UK

Euro-area economic momentum accelerated to the fastest pace this year, adding to evidence that growth is becoming more resilient. A Purchasing Managers’ Index for manufacturing and services rose to 53.7 in October from 52.6 in September, IHS Markit said on Monday. This is the fastest pace since the beginning of 2016.

Manufacturing rose to 53.3 from 52.6 in September, the highest level in 2 1/2 years, IHS Markit said. Meanwhile, the services PMI rose to 53.5 from 52.2. Germany was the strongest performer among euro-area economies, supported by a pick-up in factory activity, while the pace of growth in France slowed, according to the report.

In a sign that inflation may be starting to stage a comeback in the region, IHS Markit said companies reported higher prices as a consequence of the need to pass on to customers rising costs from commodities and wages..

German business confidence

Business confidence rose to the highest level in more than two years in October, the Munich-based Ifo institute said on Tuesday. This adds to signs of renewed growth momentum in Europe’s largest economy, after uncertainty related to the UK’s vote to leave the European Union contributed to a temporary slowdown.

In the report, the IFO institute said its business climate index climbed to 110.5 from 109.5 in September. That’s the highest level since April 2014 and compares with a median estimate in a Bloomberg survey of economists of 109.6. An index for economic expectations rose to 106.1 from 104.5, while the evaluation of the current situation also improved to 115 from 114.7.

Draghi stated that the ECB is aware of the growing costs to the financial sector of its ultra-loose monetary policy and would rather not have to keep negative interest rates for too long. He also indicated that Europe will come out of negative interest rates when price stability is reached in a sustainable way. In detail, the ECB was aware that low interest rate and excess of liquidity could be a recipe for disaster, but saw no such risk at the moment.

The UK economy grew more than expected in the third quarter though economic activity slowed from the previous quarter. In a report, the Office for National Statistics said gross domestic product expanded by a seasonally adjusted 0.5 percent in the three months ended September 30, above forecasts for growth of 0.3 percent. Year-over-year, UK economic growth expanded 2.3 percent in the third quarter, also above the forecast for an expansion of 2.1 percent. The UK economy grew at an annualized rate of 2.1 percent in the second quarter.

The pattern of growth continues to be broadly unaffected following the EU referendum with a strong performance in the services industries offsetting falls in other industrial groups. In the third quarter, the services industries increased by 0.8 percent. In contrast, output decreased in the other 3 main industrial groups with construction decreasing by 1.4 percent, agriculture decreasing by 0.7 percent and production decreasing by 0.4 percent, within which manufacturing decreased by 1.0 percent.

Japanese trade balance

Japan’s trade balance returned to positive territory in September, as exports declined for a 12th consecutive month albeit at a much slower rate than expected. The Ministry of Finance reported a merchandise trade surplus of 498.3 billion Yen in September, following a deficit of 18.7 billion Yen in August. A median estimate of economists called for a surplus of 341.8 billion yen.

Japan’s exports declined 6.9 percent in the 12 months through September, following August’s 9.6 percent drop. A median estimate of economists called for a decline of 10.4 percent. On the other hand, Imports plunged at an annualized 16.3 percent and fell 17.3 percent year-over-year in August.

Japan’s deflated economy saw little evidence of price growth last month after policymaker’s uprooted monetary policy after years of failed stimulus. The national consumer price index declined at an annualized 0.5 percent in September, following an identical drop the previous month, the Statistics Bureau reported Friday. Core inflation, which excludes food prices, fell 0.5 percent in the 12 months through September and Core prices fell by a similar percentage in August.

Japan has now been in deflation for seven consecutive months. As a result, the Bank of Japan has embarked on a new policy framework aimed at controlling interest rates. The new program also included adjustments to the volume of asset purchases. These efforts will help the BOJ manage the impact of negative interest, an unconventional policy tool that was announced earlier this year. Kuwait Kuwaiti dinar at 0.30300 The USDKWD opened at 0.30300 yesterday morning.