Global Market Key Points
In the U.S. retail sales continued to grow in August for the second straight month but though improvement was recorded, the third quarter growth is likely to be quite weak. Stock markets stagnated yesterday and the dollar index lost nearly 0.8% as risk aversion stimulated investors to seek for safer assets. Precious metals prices surged yesterday: Gold by 2%, Silver by 1.4% and Platinum by the highest increase since January of 2.9%. For the first time in six years Japan has decided to get involved in its currency market, in order to weaken the strong yen. The Bank of Japan has just started to sell yens and to buy U.S. dollars, mentioning it will continue with its easing monetary policy. The yen was traded yesterday against the dollar at 82.92 ratio and while writing this report the rate rose to 85.47. Annual CPI inflation in the U.K. rose in August more than market forecasted exceeding again the 3% government level as figure came-in at 3.1%, following the same pace in the previous month. Business confidence among Australian firms climbed in August to the highest level in four months despite the overall uncertainty regarding the national election result. The National Australia Bank expects the economy to grow by 3.25% this year.
The Euro-zone industrial production unexpectedly stagnated in July following 0.2% decline in the previous month, bringing the annual gain to slow to 7.1% which is the smallest gain since February.
EUR/USD – German Investors are Concerned over Global Recovery
The German ZEW indicator for economic sentiment, based on a survey of German investors and analysts predicting economic developments six months ahead, declined in September for the fifth straight month to the lowest level since early 2009. The Index dropped 18.3 points from 14 in August to (-4.3) in September which is well below the historical average of 27.2 points. The result is reflecting investors’ concern over the global recovery as industrial production in August stagnated in July and new orders declined which may indicate not only a temporary slowdown but also may be a sign that activity is starting to flatten.
USD/JPY – Japan has Started to Get Involved in the Currency Market
For the first time since the beginning of 2004 the Japan has decided to get involved in its currency market, in order to weaken the strongest yen in 15 years that has been damaging exporters’ profits. The Bank of Japan has started to sell yens and to buy U.S. dollars. Some analysts predict that the influence of this kind of intervention on the currency market is likely to be short-lived as the Bank of Japan acts alone and other central banks are not getting involved. The yen was traded yesterday against the dollar at 82.92 ratio and while writing this report the rate rose to 85.47. The central bank said it would continue with its easing monetary policy.
GBP/USD – Annual Inflation in the U.K. at 3.1% in August, Unchanged from July
Annual CPI inflation in the U.K. rose in August more than market forecasted exceeding for the sixth consecutive moth the 3% government level as figure came-in at 3.1%, following the same pace in the previous month. The monthly increase in CPI from July to August was 0.5% mostly due to higher prices of air transport, clothing & footwear and food that were partially offset by lower prices of second-hand cars and fuel & lubricants products. This result may prompt those in the Bank of England that argue to raise interest rate to achieve price stability. The interest rate has been unchanged at 0.5% in the past 18 months.
AUD/USD – Business Confidence in Australia Improved Significantly in August
Business confidence among Australian firms climbed from 2 points in July to 11 points in August – the highest level in four month despite the overall uncertainty regarding the August 21 national election result that left the both major leaders with not enough seats to form a majority over the house. The National Australia Bank has updated its forecast for 2010 according to which the Australian economy is expected to grow by 3.25%. Expecting the economy to gather speed in 2011, economists predict the central bank will raise interest rate by 0.25 basis points each quarter of 2011 to 5.5% by the end of the year.
USD/CAD – Retail Sales in the U.S. are Improving for the Second Month
Overall retail sales in the U.S. continued to improve in August for the second straight month. Retail sales volume edged up 0.4%, higher than 0.3% gain expected, following July’s 0.1% gain that was revised downward, suggesting the third quarter growth will be rather weak. Excluding autos retail sales rebounded from July to August by 0.6% and sales excluding autos & gasoline jumped 0.5%. The good news is that consumer are still spending as household consumption accounts nearly two-thirds of the economy, and though August figures are better than estimated, these are still considered as modest gains.
EUR/JPY – Industrial Output in the Euro-zone Stagnated in July
The Euro-zone industrial production unexpectedly stagnated in July following 0.2% decline in the previous month, bringing the annual gain to slow to 7.1% which is the smallest gain since February. When comparing to the second quarter average level, output in July was higher by 0.2%. Production of capital goods slightly gained 0.1% monthly following four consecutive months of improvement and posting a year-on-year 9.2% increase. Non-durable goods production came in at a modest 3.6% year-on-year. Industrial output in Germany, the largest economy in the Euro-zone remained unchanged in July but was higher 11.4% than a year earlier.
Precious metals prices jumped yesterday due to a boosted demand as investors turned to safe-haven tools while stock market stagnated and the U.S. dollar lost 0.8% against major currencies. Gold futures contract for December delivery jumped by $24.60 (2%) to the highest price ever recorded of $1271.70 per ounce after being traded during the session between $1246.00 and $1276.50. Analysts say gold prices may rise further to average at $1,400 per ounce in the fourth quarter as outlook shows stock markets are not “going anywhere”. Silver futures gained 1.4% to settle at $20.432 per ounce and Platinum futures posted the highest increase since January of 2.9% to settle at $1,594.40 per ounce.
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