The U.S. Market – a weekly Review
Consumer Price Index in the U.S. rose by 0.3% in August following the same pace in July, mostly due to energy prices. Over the last 12 months, the all items index increased by 1.1% slightly down from annual inflation of 1.2% in July. Core annual inflation, i.e., annual change of all items CPI excluding food & energy remained at 0.9% since April. The low inflation rate gives the Federal Reserve Bank the scope to remain the interest rate at the current range of 0-0.25%. University of Michigan’s Consumer Confidence index unexpectedly fell in September as consumers were more concerned regarding their employment situation, with 9.6% unemployment rate remaining at the highest in more than twenty years. Index fell to 66.6 points from revised 68.9 in August, while median forecast predicted the index to come-in at 70 points. Initial claims for unemployment benefits however fell by 3,000 people to 450,000—the lowest level in two months. The Current Account deficit in Q2 widened sharply to 3.4% of GDP. Deficit came-in at $123.3 billion up from $109.2 billion (3% of GDP) in Q1, mostly due to a larger deficit in the goods & services account. Precious metals continued to advance last week with gold reaching the highest price ever recorded of $1.277.50 per ounce posting 2.5% gain over the last week and silver price topping thirty years record of $20.816 per ounce. Stock markets continued to rebound as well with Dow Jones and S&P500 gaining nearly 1.4% each over last week, the NASDAQ improving by 3.3% while dollar index fell by 0.5%.
EUR/USD – Growth in the Euro-zone is expected to Slow to 0.5% in the Third Quarter
The Euro zone economic growth forecast by the European Commission has been revised up from 0.9% estimated in May to 1.7% estimated last week mostly due to the unexpected solid growth recorded in the second quarter. The second half growth, however, is expected to slow. Industrial production surprisingly stagnated in July bringing the annual growth to 7.1% – the slowest gain since February. German ZEW economic sentiment in the Euro-zone’s largest economy declined in September for the fifth straight month. Annual inflation in the Euro-zone slowed from 1.7% in July to 1.6% in August and is expected to slow further in few months ahead. Annual inflation is expected to average 1.4% in 2010 and the economy growth is forecasted to slow to 0.5% in Q3.
USD/JPY – Japanese Yen Depreciated vs. the U.S. Dollar by 1.8% due to the BOJ’s Intervention
The big news of last week in Japan was the Government’s decision to reduce somewhat the strong Japanese yen by getting involved in the currency market. Last Wednesday, six years after depriving itself from intervening the currency market, the Bank of Japan started to sell yens and to buy dollars in order to weaken the Japanese yen. The yen depreciated by 1.8% vs. the dollar last week from 84.24 yens to dollar to 85. 74 and was traded as low as 82.87 before the BOJ’s act. The week ahead is also limited in economic indicators. The METI’s ‘All Industries Activity Index’, that measures total value of goods & services purchased by business, will be released on Wednesday and is expected to rise by 1.1% in August, after gaining 0.1% in July.
GBP/USD – Annual Inflation in the U.K. continued to Exceed the 3% Level
Annual inflation in the U.K. rose in August more than expected by 3.1% exceeding again the 3% level according to which the central bank has to inform the government. The higher than expected inflation rate may stimulate some voters in the central bank to strive for interest rate hike. Inflation expectation for 12 months ahead rose to 3.4% which is the highest level in two years. Retail sales surprisingly posted in August the first decline since January after few months of strong growth. The European Commission has revised up the U.K. economic growth expectations from 1.2% to 1.7% for the year 2010 based on second quarter outstanding results. Consumer sentiment improved as people felt more confident in the future financial situation.
AUD/USD – Australian Business Confidence Improved but Consumer Sentiment Declined
The Labor market continues to grow in Australia. Last week the Australian Bureau of Statistics reported that unemployment rate fell by 0.2 basis points to 5.1% in august as employers added nearly 31,000 positions. Business confidence among Australian firms improved in July to the highest level in four months. However, consumer sentiment surprisingly declined for the first time in three months although positive economic indicators had been reported over the month before the survey was conducted. According to the National Australia Bank the economy is expected to expand by 3.25% in 2010 and other economists forecast the interest rate to reach to 5.5% by the end of 2011.
USD/CAD – Manufacturing sector’s Sales in Canada Declined in July
Last week economic data in Canada was limited. Manufacturing sales decreased 0.9% in July but posted 15.5% gain since May 2009. The Canadian Dollar weakened by 0.2% vs. the U.S. dollar in the course of last week. The overnight rate was raised by 0.25 basis points to 1%. This week some leading indicators’ data will be released; CPI will be published tomorrow, market expects price index for August to remain unchanged compared with the previous month, after rising 0.5% in July. Retail sales and the Statistic Canada’s ‘Leading Indicators Index’ will be published on Wednesday. Market expects retail sales to rebound 0.5% in August after falling by 0.5% in the previous months. The leading indicator is expected to rise further.
Gold price gained 2.5% in the course of last week reaching a new record on Friday and silver price jumped to the highest level in three decades. Last week’s price increase was the fifth weekly gain in the past six weeks. Gold futures contract for December delivery closed up on Friday $3.70 (0.3%) at $1,277.50 per ounce which is the highest price ever recorded, after being traded as high as $1,284.40 during the session. Year-to-date gold price gained 16.6%. Silver futures for December delivery rose 4.5 cents (0.2%) to settle at $20.816 per ounce, the highest closing price for a most-active contract since October 1980. Platinum futures for October delivery added $10 (0.6%) to $1,621.90 per ounce on the New York Mercantile Exchange.
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