Last week, markets translated Vice Chairman Yellen’s testimony before the Senate Banking Committee as broadly dovish. Yellen avoided providing any specific guidance as to when the Federal Open Market Committee would start the tapering process. However, several elements of her testimony stood out, she noted that it was important not to remove policy accommodation while the economy is still in a fragile state and she observed that the Fed is closely monitoring asset prices for signs of bubbles.
The Euro currency fell against its US dollar counterpart after the ECB governor Peter Praet stated that, “if our mandate is at risk we are going to take all the measures that we think we should take to fulfil that mandate”. This raised the prospect of the ECB adopting negative interest rates or buying assets from banks. The Euro regained after Yellen’s comments, to touch a high of 1.3505. The single currency then closed the week at 1.3496.
The Pound was well bid against the US Dollar, recovering from its 6-week low of 1.5904, and closing for the week near 1.6140. The strength in the Pound was attributed to the Bank of England Governor Mark Carney upbeat assessment of the UK economy, leaving open the possibility of an interest rate hike earlier than previously thought, due to a faster improvement in the labour and housing markets. The US Dollar rose to a two-month highs against the Japanese Yen to 100.43 after Japanese Finance Minister Taro told a parliamentary committee, that Japan no longer faces criticism from other major economies, and that its “Abenomics” stimulus policies are aimed at intentionally weakening the Yen.
Last week the European Government Bonds Rallied, and the difference between the US Treasuries 5-year and 10-year notes yields widened to the most in more than 2-years as Federal Reserve Chairman nominee Janet Yellen told congress she will prompt the Feds unprecedented stimulus programme until economic growth is stronger.
The trade deficit in the United States widened more than expected in September reaching a four month high, as imports rose to their highest level in almost a year and exports fell for a third consecutive month, suggesting lower growth in the third quarter. The trade gap rose 8.0 percent to USD41.8bn, the largest since May. The data came well above market expectation of a 39bn US Dollar deficit. The United States Jobless claims fell slightly last week, suggesting that the labour market recovery remained sluggish. Initial Jobless claims for state unemployment benefits fell by 2,000 applicants to a seasonally adjusted 339,000.
The Federal Reserve Chairman nominee, Janet Yellen testified at a confirmation hearing before the Senate Banking Committee last week. Yellen stated that it is “imperative” to promote a strong economic recovery. Speaking about the ongoing QE programme, Yellen said the Fed’s current USD85bn per month asset purchasing programme could not continue forever and that the Federal Reserve was monitoring and assessing risks carefully, adding that the committee is looking for signs of growth to promote robust recovery.
The Eurozone economy slowed sharply in the third quarter, the Gross Domestic Product of the seventeen-country group grew by just 0.1 percent in the third quarter of 2013, marking a slowdown from an expansion of 0.3 percent in the second quarter. The latest data signals that the Eurozone could be sliding back towards recession after it had pulled out of an eighteenth-month stretch of negative growth. The ECB cut its benchmarked rate to a record low of 0.25 percent this month to fight low inflation and create growth.
Last week, the UK inflation unexpectedly fell to its lowest rate for more than a year in October, reassuring the Bank of England that it has plenty of time to allow the economy to strengthen before it starts raises interest rates. UK unemployment rate fell to 7.6 percent in the three months to September, bringing it closer to the 7 percent level at which the Bank of England will consider raising interest rates. The Sterling Pound was well bid after the Bank of England updated its growth, inflation, and unemployment forecasts, stating that they now estimate unemployment has a better than even chance of reaching the 7 percent threshold.
British house prices rose at their fastest rate in 11 years in September and sales hit a four-year high, pointing to a sustained recovery in the housing market sector. The house price index jumped to 54, its highest level since 2002 and well above the reading of 45 predicted by analysts. Prime Minister Cameron said yesterday, that more than 2,000 homebuyers obtained mortgages through the mortgage to lending scheme in the first month since the government guarantee was introduced, with most of those as first-time buyers.
Japans current account surplus came at JPY587.3bn in September, beating market expectation of JPY400.0bn. The surplus jumped 14.3 percent on year. Exports jumped 12.0 percent to JPY5.717tr following the 14.1 percent increase in the previous month. Imports spiked an annual 18.2 percent to JPY6.592tr after climbing 16.4 percent a month prior. Moreover, the Bank of Japan said that total bank lending, excluding trusts, was up 2.3 percent on year in October, standing at JPY407.75tr. That was in line with forecasts and up from the 2.2 percent gain in September.
Last week, China’s leaders unveiled a series of reforms aimed at overhauling its economy over the next decade. In a statement issued after a closed-door summit, they promised the free market would play a bigger role. The Third Plenum talks began in Beijing on Friday, and ended early today with a brief statement outlining areas that had been agreed on.
It is widely expected that the reforms could carry enormous importance. A more complete list of changes to the economy and the social sector is expected to be released in the coming days.
The Peninsula
