The holiday season quietness continued as most of the major global markets were off duty most of last week due to the Christmas break. However, the Fed’s announcement to taper its QE programme continues to be the most important topic on the table amid signs that economic growth is gaining momentum. Market expectations that the Federal Reserve will continue to reduce its monetary stimulus after tapering quantitative easing this month as the US economy becomes stronger. Policy makers will possibly reduce bond purchases in $10bn increments over the next seven meetings before ending the programme in December 2014. Based on a limited trading session last week due to the holidays, the US dollar had a mixed performance staying relatively weak against most of its counterparts except for the Japanese yen. This is shown in the performance of the Dollar Index, which opened the week trading at 80.53 levels, and stayed flat in the Asian session during the holiday before falling at the end of a short week, closing sessions at 80.338.
On the other hand, the euro was supported by thin-trading and stayed almost flat going into the break before gaining some strength on Friday, aided by low liquidity. The Euro started the week at 1.3669, gaining dramatically on Friday to touch a high of 1.3892. The 17-nation currency managed to trade upwards supported by a better-than-estimated French consumer spending and tiny liquidity. The single currency ended the week at 1.3741.
The Sterling Pound followed suit, climbing at the end of the week after the holiday in a very thin market. Cable opened the week at 1.6329 levels, and reached a high of 1.6577 on Friday. Finally, the currency closed at 1.6478.
The Japanese yen was the biggest loser last week, as it weakened against the greenback. The currency opened the week trading at 104.08 and going as high as 105.18 on Friday. The Japanese yen ended the session high at 105.15. The Japanese yen fell 15 percent this year, the most among 10 developed-market currencies.
The University Michigan Consumer Sentiment Index surged to a 5-month high this month, signalling that Americans are confident in the US economy, and spending will continue to rise. The consumer confidence climbed to 82.5 in December from 75.1 recorded the previous month. As employment picks up and housing outperforms, household wealth and sentiment increases. This was the highest reading for the index since July, but came slightly under economists’ expectations of 83.
US durable goods orders climbed 3.5 percent in November, exceeding market expectations of a 0.9 percent increase, after falling 0.7 percent in October. Excluding demand for transportation equipment, orders for long-lasting goods such as computers and machinery increased last months by the biggest advance in 10-months, signalling a solid economic expansion going into 2014 for the American economy.
The number of new home sales dropped 2.1 percent to an annual rate of 464,000 in November from a revised 474,000 in October, holding near a five-year high. The slight drop indicates that the housing recovery was gaining momentum even as mortgage rates climbed. The ramp up in home purchases came as a response to the higher demand caused by employment gains and record-high stock prices.
Fewer Americans filed applications for unemployment benefits than expected, indicating that the US labour market is in a better shape. Jobless claims dropped by 42,000 to 338,000. The four-week moving average was 348,000, an increase of 4,250 from the previous week’s revised average of 343,750. The year-end holidays is a time where jobless claims volatility are high, making it difficult to adjust for fluctuations.
Europe
French household expenditure on goods increased by 1.4 percent in November, coming after 0.1 percnet drop in October. The figure has exceeded economists’ forecasts of 0.3 percent. This increase was mainly due to a decrease in expenditure on energy products. Expenditure on engineered goods has been increasing continuously since June.
UK Mortgage approvals in Britain remained more than a third higher in November than a year earlier as government supports for home buyers helped the property recovery gather pace. Figures from the British Bankers’ Association showed that gross home loan borrowing last month stood at £10.3bn, jumped 37 percent on the same month in 2012.
Asia
The Bank of Japan meeting minutes showed that one board member has stated that a slowdown in growth could represent a downward shift in trend. The BoJ is buying more than 7 trillion yen ($66.9bn) of government bonds each month in an attempt to end 15 years of deflation. BoJ officials see significant scope to boost bond purchases if necessary to achieve their two percent inflation target. The dollar rose toward a 5-year high against the Japanese Yen as markets bet on a divergence in monetary policy with the US Federal Reserve paring stimulus while the BoJ continues unprecedented easing. The Prime Minister of Japan, Shinzo Abe, has said that “the Japanese economy is making progress toward escaping deflation and that economic improvement is broadening.” He also mentioned that the country was out of deflation for the first time in four years. Bank of Japan Governor, Haruhiko Kuroda, said “consumer inflation will exceed one percent in the first half of next year and help the central bank achieve its goal of changing the public’s perception that deflation will persist”.
Gold Price
Gold fell 3.2 percent in December for a fourth monthly loss after the US Federal Reserve stated to taper its quantitative easing programme. The metal climbed to $1,215.95 on Thursday, the highest since December 19, and declined nine percent since the end of September.
The Peninsula
