Investors have been lacking direction this week with the recent weakness that is developing in China, the ongoing recession in the euro zone and the unknown effect of the sequester in the US.
In the US, William Dudley, president of Federal Reserve Bank of New York and vice-chairman of the Federal Open Market Committee , said in a conference on transatlantic economic interdependence that Europe’s economic outlook “seems less bright” and support for fiscal and structural changes could further erode if growth does not “resume relatively soon.”
The US dollar was stuck in a tight trading range this week against the majors as the recent US economic data indicated a slowdown in the economic recovery especially after weaker than expected GDP data.
The euro had a lacklustre performance last week, trading in a tight range between a high of 1.3093 and a low 1.2954. The currency’s recent weakness was supported by worse than expected economic indicators in Germany and worse than expected unemployment data in Spain, adding to signs that the European central bank might cut interest rates soon.
The Sterling Pound started the week at 1.5196 only to regain some moment after better than expected GDP data indicating that the UK economy avoided a triple-dip recession. Cable closed the week at 1.5480.
The Japanese Yen continued to find resistance at the psychological 100 level, in spite of the BoJ’s continued support for the ongoing monetary easing programme.
On the commodity side, gold maintained its ongoing recovery reaching as high as 1,485.21 before settling down and closing for the week at 1,456.91
Sales of new US homes improved in March as near record-low mortgage rates helped the industry complete the strongest quarter since the financial crisis started in 2008, indicating the housing market recovery remains on track. The Commerce Department said last week that new home sales increased 1.5 percent to a seasonally adjusted annual rate of 417,000 units. Last month’s rise followed a 7.6 percent drop in February. New home sales year on year were up were up 18.5 percent, signifying that the latest strength in the housing market that helped boost the economy was still on course.
Durable goods orders dropped 5.7 percent as demand for commercial aircraft and business investment cooled, the Commerce Department said last week. The drop in orders for these goods followed a revised 4.3 percent gain in the prior month. The drop, which was larger than what economists had expected, provided a fresh indication of cooling at factories.
The number of Americans filing new claims for unemployment benefits fell last week by 16,000, signalling a slight improvement in the labour market despite recent slower growth .The initial claims benefits dropped to a seasonally adjusted 339,000 and the one-month moving average for new claims, a less volatile measure of labour market trends, fell 4,500 to 357,500. The economy in the US grew less than analyst forecast in the three months of 2013, as a drop in defence spending outweighed the biggest increase in consumer spending in two years. Gross domestic product rose at a 2.5 percent annual rate, after a 0.4 percent fourth quarter advance. The recent weaker than expected GDP data would most likely give the Federal Reserve more reason to stick with its ongoing monetary easy programme.
Unemployment in Spain, Europe’s fourth biggest economy, rose more than expected in the first quarter to its highest level since the 1970’s. Unemployment jumped to a record 27.2 percent and the number of jobless increased to more than 6 million for the first time fuelling a European debate over whether to stop austerity policies and switch to reviving economic growth.
Germanys Purchasing Managers’ Index a measuring growth in both services and manufacturing, which together account for more than 70 percent of the total economy performance. The PMI fell to 48.8 in April from 50.6 the previous month. This is the First time the index’s fall below the 50 mark, a sign that the economy is likely to contract.
German business sentiment fell in April for the second consecutive month, after winter weather delayed the recovery in Europe’s largest economy. The Munich-based Ifo think tank said last week its business climate index, based on a monthly survey of some 7,000 executives, fell to 104.4 from 106.7 in March, raising the risk that the economy fell into a recession in the first quarter, adding to signs that the European Central Bank Might cut interest rates.
Britain’s economy avoided a triple-dip recession in the first quarter by growing faster than expected in the first three months of the year. The Office for National Statistics said that Britain’s gross domestic product rose 0.3 percent in the first quarter, above forecasts for a 0.1 percent rise.
Japan’s core consumer price index fell excluding fresh food fell at its faster pace in March; the CPI dropped 0.5 percent marking the biggest decline in two years, suggesting the Bank of Japan faces a difficult task to achieve its two percent inflation target.
At the Monetary Policy Meeting held on last week the Policy Board of the BOJ decided, by a unanimous vote, to set the following guideline for money market operations for the inter-meeting period, they will conduct money market operations so that the monetary base will increase at an annual pace of about 60-70tn yen.
China’s vast manufacturing sector expanded at a moderate pace this month due to weakness in global and domestic demand, fuelling concern that the world’s second-largest economy might face difficult times heading into the second quarter. The flash HSBC Purchasing Managers’ Index for April dropped to 50.5 in April from 51.6 in March but was still stronger than February’s reading of 50.4. Still the PMI has been above the 50-point level since November 2012 indicating that China still has growth, however the failure to break above 53 indicates that the economic expansion at moderate pace.
The Peninsula
