Dol­lar strength­ens amid quiet trad­ing NBK MONEY MAR­KETS RE­PORT

Kuwait Times - - BUSINESS -

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.

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