The US dollar lost its footing against most of its counterparts as risk appetite staged a return at the beginning of the week, driving investors to shift to riskier assets amid better-than-expected data from major economies combined with solid earnings in the US.
The US Dollar index started the week at 79.67, only to drop to a low of 78.
94 as better data helped boost the risk rally. However, the Dollar recouped some of its losses as the market shifted its focus towards the outcome of the EU summit. Additionally, disappointing earnings released from Google and Microsoft at the end of the week triggered mild risk aversion on Friday. The Index closed the week at 79.62, according to an extensive report released by the National Bank of Kuwait, on Sunday, shedding light on latest status of the international market.
The Euro opened the week at 1.2951 and quickly gained against the greenback to reach a high of 1.3140 mid-week, as Moody's refrained from reducing Spain's credit rating to junk status and as lower Spanish 10-year yields joint with better economic data from the US lifted sentiments in the markets.
On Friday, the single currency traded sideways as news showed that EU leaders agreed upon the banking union and deeper EU integration. However, Germany claimed that outstanding questions regarding budget and implementation would stall progress for a year.
As to the main currencies, the Euro reached a low of 1.2891 and closed the week at 1.3024. The Sterling Pound followed suit, and reached a high of 1.6178 mid-week after opening the week at 1.6072. But, cable dropped dramatically towards 1.6021, as comments from a Bank of England policymaker suggested more easing in the near term. The announcement fuelled expectations that the UK's AAA rating was at risk as the markets focused on the country's public borrowing numbers. However, the figure exceeded expectations and gave a boost to sentiments. Cable regained some of its losses and closed the week at 1.6004.
The Japanese Yen dropped throughout the week against the greenback as the improved sentiments in the Euro area reduced demand for the relative safety of the currency. Additionally, investors still suspect that Japanese officials may intervene in the FX markets. The USD/JPY opened the week at 78.44 and reached a high of 79.47. The currency closed the week at 79.32.
The Australian Dollar gained dramatically, last week, as signs of improvement in the global economy supported demand for riskier investments. The Aussie opened the week at 1.0233 and gradually gained throughout the week to reach a high of 1.0412. The Aussie eased on Friday and closed the week at 1.
0331. On the commodities side, gold traded in a volatile matter, last week, but remained subdued throughout the week amid solid data from major economies reducing prospects of further easing initiatives. The precious metal opened the week at 1,754 and quickly dropped to its week low of 1,729. Gold recouped its loss to reach a high of 1,753 mid-week, but positive sentiments triggered by better growth in China, a successful Spanish bond auction and better housing numbers from the US reversed the movement and pushed gold to close at 1,721.
The report by the highly-ranked Kuwaiti bank noted improvement in the US housing market. Constructions of new-homes in the US surged in September to the highest level in four years, a sign that the industry was on the path to recovery. Housing Starts jumped 15% to an 872,000 annual rate last month, the most since July 2008, exceeding all forecasts.
A pickup in sales, stoked by record-low mortgage rates and population growth, indicates construction can continue strengthening, contributing more to economic growth. In parallel, Americans took out more residential construction permits in September than at any time in the past four years, adding more signs that the market will continue to improve. Permits rose by 11.
6% to reach 894,000, exceeding both expectations of 810,000 and the prior result of 803,000.
Meanwhile, sales of previously owned US homes held near a two-year high in September, restrained by a lack of supply that is pushing prices higher. Purchases of existing houses decreased 1.7% to a 4.75 million annual rate, matching expectations. The median prices from a year earlier jumped by the most since 2005 as inventories declined. Moreover in this vein, more Americans than forecast filed applications for unemployment benefits last week, jobless claims increased by 46,000 to 388,000 in the week that ended on October 13 from a revised 342,000 the prior period that was the lowest since February 2008. A spokesperson from the Labor department explained that the pattern of a large increase in claims at the start of the quarter seems to have shifted by a week in one state, causing the adjusted data to be volatile. On rising inflation in the US, the NBK reported noted that consumer prices in the US rose in September, for a second month as a jump in energy expenses overshadowed smaller gains in other goods and services. The Consumer Price Index (CPI) increased 0.5%, last month, after climbing 0.6% in August. Likewise, the core index that excludes food and energy costs, climbed 0.1%, less than the projected 0.2%.
Regarding retail sales in the US, they rose, higher than projected in September, reflecting broad-based gains that indicated that household spending helped bolster economic growth last quarter. The 1.1% gain followed a revised 1.2% increase in August that was the biggest since October 2010. Similarly, sales excluding autos and energy, a closely followed indicator of consumer spending, climbed 0.9% last month and exceeded the expected rise of 0.4%. As to manufacturing, the sector showed expansion in Philadelphia region, in October, for the first time in six months, a sign that the industry may be starting to stabilize. The Federal Reserve Bank of Philadelphia's general economic index rose to 5.7 from minus 1.9 in September. A reading of zero is the dividing line between expansion and contraction.
The figure indicates that a pillar of the recovery is starting to regain its footing. Gains in confidence and household wealth mean consumer spending may help support manufacturing at a time when business investment and exports are hurt by slowing global growth and the uncertainty about U.S. tax changes.
Concerning Europe, the EU Summit set toute for the Euro-Area Bank Supervision Initiative to Start in 2013. European leaders committed to their goal of establishing a Euro-area bank supervisor by year-end, opening the prospect of direct aid to Spain's banking sector.
The EU will seek to agree on a framework that makes the European Central Bank the main supervisor by the beginning of January 2013. The new system, intended to break the link between banks and governments at the root of the region's financial crisis, will phase in over the next year and could cover all 6,000 Euro-area banks by January 1st 2014. The supervisor can "probably be effectively operational," allowing the Euro bailout fund to lend directly to banks, as soon as 2013, EU President Herman Van Rompuy told reporters after the meeting. He said finance ministers would design rules for such bank rescues.
Spanish Prime Minister Mariano Rajoy wants the Euro area's firewall to inject cash directly into his country's ailing banks, to relieve it of the burden of paying back as much as 100 billion (131 billion) in bank-rescue loans.
The prospect of direct bank rescues became less urgent after stress tests revealed that Spain's lenders required less than half of the funds approved by Euro-area states.
Spain estimated, on September 28. that it might need about 40 billion to recapitalize its banks. The government played down the necessity of seeking additional aid while pushing for progress on a European banking union. "The direct recapitalization of banks can take place when the banking supervision process is in place and approved by the Euro group," Rajoy told reporters. "I don't know when that will be." Meanwhile, German investor confidence gained for a second month in October as the European Central Bank's plan to buy government bonds fueled speculation that the sovereign debt crisis can be contained. The ZEW Indicator climbed to minus 11.5 from minus 18.2 in September.
Moreover, Spanish 10-year government bonds rose for a third day after the nation sold more than its maximum target at an auction and as European Union leaders gathered for a two-day summit in Brussels. Spain's benchmark yields dropped to the lowest level since April after Moody's Investors Service kept the nation's credit rating at investment grade.
Moody's leaves Spain's Sovereign Rating at Investment Grade Spain's government was relieved, last week, when Moody's Investors Service affirmed its investment grade rating, curbing widespread fears that the Euro zone country would be reduced to a junk rating. Moody's kept Spain's credit rating at Baa3 but assigned a negative outlook, leaving both the rating and the outlook in line with Standard Poor's which rates Spain at BBB-minus. Meanwhile, Fitch Ratings' grade for Spain remains one notch higher at BBB but also with a negative outlook.
In the United Kingdom, the Consumer Prices Index (CPI) annual inflation stood at 2.2% in September 2012, down from 2.5% in August. This was the slowest rate of inflation since November 2009, when it was 1.9%.
UK jobless claims unexpectedly fell in September and a wider measure of unemployment dropped to the lowest rate in more than a year as the London Olympics helped push employment to a record. Jobless-benefit claims fell 4,000 from August to 1.57 million. The Unemployment rate fell by to 7.9% from the previous 8.1%. On a related front, nine members of the Bank's Monetary Policy Committee voted unanimously to maintain the quantitative easing asset purchases at a total of 375 billion and to keep interest rates at their record low of 0.5%. October's minutes also omitted a key phrase from the previous month's minutes, which said that policymakers "felt that additional stimulus was more likely than not to be needed".
The NBK reported that the UK public sector net borrowing narrowed. Britain posted its smallest September budget deficit since 2008, providing a boost for Chancellor George Osborne as he struggles to meet his borrowing targets. The shortfall excluding government support for banks narrowed to 12.8 billion (20.5 billion) from 13.5 billion a year earlier. Economists expected a 13.5 billion deficit. The fall was due to an improvement in the finances of local government and publicly controlled companies. Central-government tax revenue and spending both rose by 3.7%.
In China, another major player on the international economic arena, industrial production, retail sales and fixed-asset investment accelerated in September, reducing the urgency for added stimulus to support the economy after a seven-quarter slowdown. Gross domestic product expanded 7.4% in the third quarter from a year earlier. In Kuwait, the dinar stood at 0.28085 to the dinar. The USD-KWD opened at 0.
28085 early on Sunday.