The U.S. Market – a Weekly Review
The housing sector recovery in the U.S. will probably be slow and gradual. Some of last week’s indicators showed an improvement in August to some extent, but it should be noted that activity is still at a very low level. Housing starts surprisingly jumped 10.5% in August exceeding the most optimistic forecasts following a modest gain in July, while housing permits, indicator for the housing sector activity in the near future, posted 1.8% gain in August after contracting 4.1% in July. Existing home sales rebounded as well in August but though increased more than expected, sales remained at the second lower level recorded. New home sales stagnated in August. Number of new claims for unemployment benefits in the U.S. increased in the week ending August 18 for the first time in a month. Figure edged up more than expected by 12,000 people but the trend four week moving average showed a decline in initial jobless claims. The Federal Open Market Committee (FOMC) decided last week to remain the Federal funds rate unchanged at 0-0.25% range for an extended period of time as the pace of recovery in output and employment had slowed in recent months. According to the OECD economic growth in the U.S. for the year 2010 is forecasted to be 2.6% with higher than pre-crisis levels of unemployment. Stock markets continued to advance last week; the Dow Jones gained 2.4% and the S&P500 index increased by 2%. The U.S. dollar weakened vs. most major currencies in the course of last week while demand for precious metals continued to rally pushing prices up to new records.
U.S. Financial Markets at a Glance
EUR/USD – The Euro-zone Composite PMI Declined in September to Seven-Month-Low
Manufacturing and service industries in Europe grew slower than expected in September. The Merkit Composite index based on Purchasing Manages’ survey in both industries; services and manufacturing declined from 56.2 points in August to 53.8 in September posting a seven-month low level. Industrial production in Germany may slow in the coming months as industrial new orders fell in July more than expected by 2.6%, but in France new orders continued to grow in July posting a modest 0.9% gain over the month. The Euro gained 3.3% vs. the U.S. dollar over last week and stock markets edged up: the German DAX by 1.4% and the French CAC40 by 1.6%.
USD/JPY – The Japanese Quarterly Tankan Survey for Q3 is Expected to Rise
Japanese policy makers along with the Prime Minister are working these days on planning extra budget for the current fiscal year in order to finance measures aimed to assist manufacturers and small firms that were ‘punched’ by the sharp appreciation of the Japanese yen recently. The supplementary budget may be around 5 trillion yen. Tomorrow the Tankan Manufacturing Index will be press-released. The index based on a survey large Japanese manufacturers asked regarding their business sentiment, is forecasted to come-in above the 0 level indicating of improving business conditions despite the strong yen that eroded firms’ profits. Market expects index to be at 7 points, up from the 1 point level recorded in June but to edge down again in the fourth quarter.
GBP/USD – Housing Sector in the U.K. Continues to Remain Weak
Mortgage approvals in the U.K. fell further in August to the lowest level since April 2009 as demand for home loans continued to be weak even when home priced were falling. Property prices fell for the third consecutive month in September as house sellers have dropped their asking prices by a cumulative 3.4% during the three months. Budget deficit widened in August more than estimated to the largest level for the month of August deficit since 1993. The cumulative deficit for the current fiscal year came-in at 155.6 billion pounds that accounts for nearly 11% of GDP, exceeding the government target for the entire fiscal year. The pound rose against the U.S. dollar by 1.1% and the British FTSE 100 index increased 1.6% over last week.
AUD/USD – Australian Economic Leading Index Increased Further in June
The Reserve Bank of Australia’s Governor hinted last week that the central bank will be ready to resume interest rate hikes in order to cope with high inflation rate as strong economic recovery expected next year. The central bank has already lowered the interest rate by 150 basis points to 4.5%. The Westpac Melbourne Institute reported last week the Leading Index results for June. The leading index, that indicates the likely pace of economic expansion three to nine months into the future came in at 6.8% in June and though pace has slowed during the past fourth months, June’s figure is well above the index long-term trend level of 3.2%. The Westpac Melbourne Institute projects 3.5% growth in Australia for the year 2010.
USD/CAD – Retail Sales as well as Wholesale Sales Slowed in Canada
Most of last week’s indicators released in Canada came-in lower than market had forecasted, but overall the U.S. dollar weakened by 1% vs. the Canadian dollar over the week. Canadian Wholesales sales decreased in July more than expected posting the fourth monthly decline in a row. Annual inflation surprisingly slowed in August to 1.7% from 1.8% in July while market expected the cost of living annual pace of change to increase to 1.9%. Consumer spending slowed as consumers reduced purchases of electric appliance, furniture and building materials; retail sales dipped in July for the third time in four months. Canadian Composite Leading Indicator, however, rose in August by 0.5% matching the average increase of May and June.
Gold price edged up 1.6% last week gaining 18.5% year-to-date and silver gained a weekly 2.8% climbing to the highest price recorded since 1980 while dollar index fell by 2.5% over the week. Gold futures for December delivery added $1.80 on Friday settled at a new record of $1,298.10 for the sixth of the last seven sessions. On Friday the most active contract was traded as high as $1,301.60 per ounce. Silver futures for December delivery rose 18.6 cents to settle at $21.399 per ounce after reaching $21.48, the highest level for a most-active contract since October 1980. Year-to-date silver price gained 27%. Platinum futures for January delivery fell $4.80 to $1,645.40 per ounce but gained 1.4% last week and 12% year-to-date.
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