Last week, politicians in the US approved a deal to end a 16-day partial government shutdown and avert a default hours before the government reached its $16.7 trillion debt ceiling. The deal sets a new date, January 16, for the Republicans and Democrats to work out their differences over the US budget, and allows treasury to borrow normally through February 7. Under the current deal, the US government is able to borrow as much money as it needs to cover obligations now. It can also use months of extraordinary measures once again to keep the government running if Congress were to refuse to raise the debt ceiling in the future. However, the new deadline indicates more uncertainty that could create chaos in the markets.
Initially after the deal, the Dollar rose as investors took a sigh of relief. Conversely, the US Dollar reached 8½ months lows against a basket of currencies as the political wrangling combined with the estimated damage that inflicted growth from the US shutdown, fuelled expectations that the Fed will revisit the idea of tapering its QE program in the middle of next year rather than in January, as previously expected.
The Dollar index, which measures the Dollar’s value against a basket of currencies, fell to 79.478 on Friday; its lowest since early February. The index was down around 1 percent on the week, posting its biggest weekly decline since the week of September 20, which came after the surprise Fed decision to refrain from tapering and keep its policy unchanged. The Euro rose to 1.3703 against the Dollar, its highest since early February when it touched its 2013 peak of 1.3711. It closed the week at 1.3685, up 1 percent for the week.
The greenback also struggled against the Japanese Yen after a fall in US bond yields weighed on the US currency’s appeal to investors. It was slightly lower at 97.80, below a three-week high of 99.01 reached on Thursday. The Dollar has lost 0.8 percent against the Yen this week, the worst week since September 27. The Australian Dollar rose to a four-month high, helped by data showing China’s annual economic growth accelerated to 7.8 percent in the third quarter. The currency reached a high of 0.9678 for the week and closed high at 0.9675. Sterling rose on Friday and was on track for its best weekly against the Dollar in a month, lifted by strong British data combined with expectations that the US Federal Reserve will not withdraw stimulus any time soon. Cable reached a high of 1.6206 on Thursday as retail sales data exceeded estimates, supporting expectations that the British economy grew faster than expected in the third quarter.
Manufacturing in the Philadelphia region expanded more than projected in October, a sign that factories are sustaining the momentum gained prior to the partial federal shutdown that ended today. The Federal Reserve Bank of Philadelphia’s general economic index fell to 19.8 this month from a more than two-year high of 22.3 in September.
Jobless claims decreased by 15,000 to 358,000 in the week ended October 12 from a revised 373,000 in the prior period. Economists expected a decrease to 335,000. Applications in California remained elevated and last week’s total included some non-federal workers dismissed due to the gridlock in Washington.
Europe
German Investor Confidence Rising
German investor confidence increased for a third month in October, signaling that the recovery in Europe’s largest economy is withstanding financial-market turbulence stoked by a US fiscal standoff. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, rose to 52.8 from 49.6 in September. That’s the highest since April 2010. Meanwhile economists predicted no change.
United Kingdom
Retail Sales Rising
UK retail sales rose more than expected in September as an increase in furniture demand led a rebound from a slump the previous month. Sales including fuel increased 0.6 percent from August, when they declined 0.8 percent, the Office for National Statistics said. Expectations were for a 0.4 percent gain. Household-goods sales surged 3 percent, while food-store sales fell 0.2 percent. Britain’s recovery is strengthening and unemployment is falling, lifting consumer confidence.
The number of people in Britain claiming jobless benefits had its biggest fall in more than 16 years last month but the jobless rate held steady, underscoring the Bank of England’s message that unemployment is likely to fall only slowly. The number of people claiming jobless benefits fell by a much bigger-than-expected 41,700 in September, the biggest monthly fall since June 1997. August’s claimant count was also revised lower to show a drop of 41,600, a fall of 9,000 more than first reported. The unemployment rate was 7.7 percent in the June-August period, unchanged from May-July and in line with most forecasts in the market.
China
China Growing at a Faster Pace
Data released last week showed that China’s economy grew 7.8 percent in the third quarter of 2013 from a year earlier. Meanwhile, expectations were for a 7.8 percent gain in gross domestic product after a 7.5 percent advance in the second quarter.
The Peninsula
