Stronger dollar thanks to positive US data

KUWAIT: The dollar index rallied last week after a set of US economic reports ranging from retail sales, employment, existing home sales and consumer sentiment suggested that the US economy regained its footing in February after stumbling in the fourth quarter. The dollar index opened for the week at 96.762 and then rallied to a high of 98.26 to close the week near its highs at 98.09.

The euro dropped against the US dollar last week as business activity in the eurozone grew at the slowest rate for over a year in February and deflationary pressures intensified, greatly increasing the odds for a more aggressive stimulus from the ECB in March. The euro opened the week at 1.1125 and reached a low of 1.0910 closing the week at 1.0939.

In the UK, the announcement of a referendum for the 23rd of June opening the possibility that Britain would leave the EU sent the Sterling Pound down three percent against the US dollar last week. Economists are worried about the implications of a Britain potential exit. According to the majority of economists polled last week, Britain’s economy would be worse off if voters decide the country should leave the European Union. Additionally, analysts at some of the world’s biggest banks said an EU exit could shrink UK’s economy by as much as two percent over the next couple of years and could take as much as ten percent off GDP over the next decade. Cable opened the week at 1.4308 only to drop to a low of 1.3852. The currency closed the week at 1.3878.

The Japanese Yen also declined against the greenback last week as positive data from the US economy continue to keep the dollar supported. The pair opened the week at 112.61 and quickly reached a low of 111.04. However, positive data released from the US pushed investors to buy the US dollar, pushing it to a high of 113.99. The pair closed the week at its highest level of 113.99.

Strong US housing numbers

US home resales rose in January, reaching a six-month high, confirming that the US economy remains on stronger grounds despite slowing global growth. Existing home sales increased 0.4 % to an annual rate of 5.47 million units, the highest level since July. Economists had forecast home resales to drop by 2.9 percent to a pace of 5.32 million units last month. Existing home sales were up 11 percent from a year ago, the largest year-onyear gain since July 2013. Housing continues to be supported by a tightening labor market, which is starting to push wage growth up. First-time buyers accounted for 32 percent of existing home sales in January, an increase from 28 percent in the same month last year.

Core Durable Goods Orders Rising Sharply

The Commerce Department said orders for durable goods, rose sharply by 4.9 percent last month, reversing December’s 4.6 percent drop. January’s increase was the largest since March 2015 and beat economists’ expectations for only a 2.5 percent rise. Additionally, Non-defense capital goods orders excluding aircraft jumped 3.9 percent. The durable goods report was the latest sign that the worst of the manufacturing slowdown was probably over.

Unemployment claims

The labor market remains strong despite worries about both the domestic and global economies. The number of Americans filing for unemployment benefits rose last week, but stayed below levels consistent with a tightening labor market. Initial claims for state unemployment benefits increased 10,000 to a seasonally adjusted 272,000 for the week ended February 20. The four-week moving average of claims, considered a better measure of labor market trends, fell 1,250 to 272,000 last week.

US Q4 GDP revised higher

On a different note, US fourth-quarter GDP rose 1.0 percent on an annual basis instead of the previously reported 0.7 percent, the Commerce Department said on Friday in its second GDP estimate. Economist expected that Q4 GDP growth would be revised down to a 0.4 percent pace. The upward revision to the GDP was due to a smaller trade deficit than initially thought as imports contracted. The trade deficit subtracted 0.25 percent point from GDP growth instead of the 0.47 percent point reported last month. Additionally, business spending contracted by 1.8 percent instead of the 2.5 percent previously reported.

Consumer purchases

US consumer spending rose strongly in January and the underlying inflation rate picked up by the most since 2012, keeping the Federal Reserve interest rate increases on the table this year. Consumer spending, which accounts for more than two-thirds of US economic activity, rose by 0.5 percent in January. Additionally, the core PCE price index increased 1.7 percent in the 12 months through January, the largest rise since July 2014. The core PCE, the Fed’s preferred inflation measure, rose 1.5 percent in December.

German Ifo business climate falls sharply

Sentiment among German manufacturers dropped the most, since the height of the financial crisis in 2008, extending concerns about the health of Europe’s largest economy. The Ifo institute’s business climate index dropped to 105.7 in February from 107.3 in January. The median estimate by economists was for a drop to 106.8. German companies have been relying on healthy domestic demand and on the strength of the US economy to offset falling exports to China, Brazil and other emerging markets. However, lower oil prices were denting US growth prospects and fear is that the US would no longer be the “strong safety net” for German exports and industry.

German flash manufacturing PMI

Germany’s Composite Output Index dropped to a seven month low of 53.8. The German economy appears to be in the middle of a slowdown. Although the PMI is still signaling an overall expansion in economic activity, the rate of increase slowed for the second month running and was the weakest since last July. The slowdown of output growth additionally resulted in a more cautious approach with regards to hiring policies.

Britain’s GDP rose by 0.5 percent in the fourth quarter unchanged from an initial estimate and as expected by most economists. The data highlighted the imbalance of Britain’s economic recovery, which has depended largely on household demand and service companies. Consumer spending has benefited from near-zero inflation and steady wage growth. However, business spending dropped at sharpest rate for two years in the final quarter, creating anxiety about an unsustainable recovery.

Market analysts have warned that growth could moderate this year because of a difficult global economic outlook, as well as domestic factors, particularly June’s EU referendum. There are also worries that businesses and consumers will cut back on spending before the vote.

Tokyo core CPI

Japan’s inflation rate dropped to zero in January, according to government data released last week. Inflation rate in Japan continues to show no improvements amid weaker global economy, slower domestic consumption and lower energy price. The data also has strengthened the case for further easing in Japan, should the Bank of Japan maintain its credibility of reaching its 2 percent inflation target.

This is another blow to Prime Minister Abe’s three-year attempt to put an end to falling prices. Japan has suffered deflation since the late 1990s and authorities have introduced various policies to fight it, including adopting negative interest rates last month.

A separate index by the Bank of Japan that takes away the effect of lower energy costs also showed inflation slowing, suggesting that lower import costs are discouraging firms from raising prices for a wide range of goods.

Kuwait

Kuwaiti dinar at 0.30030. The USDKWD opened at 0.30030 yesterday morning.