Markets started the week relatively slow, as Hurricane Sandy devastated the Northern East Coast of the United States. The storm disrupted transportation and electricity, pressuring the Mayor of New York, Michael Bloomberg, to close the markets for two days for safety reasons.
On the other hand, the disagreement over austerity in Greece is overshadowing recent signs of stability. European governments pressured Greece to make deeper spending cuts to keep aid flowing as they pushed to resolve the region’s three-year-old sovereign-debt crisis.
The euro started the week on a negative note at 1.2938, as the Italian Prime Minister, Mario Monti, and Spanish counterpart, Mariano Rajoy, diverged their interests as to whether they should ask for assistance together, pushing the Euro to 1.2887.
The single currency advanced against the US Dollar to 1.3020, after data showed that the Spanish economy contracted less than expected, followed by a successful Italian bond auction. The euro then eased towards the end of the week after Greek fears resurfaced with heightened volatility, renewed tension, and after Hurricane Sandy did less damage than expected.
The euro plunged on Friday after a strong US jobs report, pushing the single currency to break below the 1.2900 level. The euro closed the week at 1.2834.
The sterling pound endured a volatile week. Cable opened the week at 1.6106, only to plunge on Monday to the week’s low of 1.6006 after fears that the UK economy will require further stimulus. The sterling pound then rebounded for two consecutive days to reach a high of 1.6175 after a report showed that UK house prices bounced back in October. Cable followed suit with the euro, plunging on Friday to close at 1.6020.
The Japanese yen opened the week at 79.65, weakening against the US Dollar throughout the week, to touch a high of 80.67 on Friday. The Swiss franc opened the week at 0.9347, only to strengthen during the middle of the week to a low of 0.9277. The Swiss franc then weakened against the US dollar towards the end of the week, following the market, to reach a low of 0.9412. The Swiss franc closed the week at 0.9398.
Consumer confidence at 4-year high: US consumer climbed in October more than a four year high, which may help drive bigger gains in consumer spending, which counts for 70 percent of the US economy, as Americas became more upbeat about the job prospects towards the end of the year. The index rose to 72.2 last month, the highest since February 2008, from 68.4 in September. Sentiment among US consumers have climbed due to a pickup in the housing market, and declining prices of fuel.
ISM manufacturing PMI: Manufacturing industry in the United States expanded last month at a faster pace than forecasted, after orders and production rose, signaling that the industry is steadying as the world’s biggest economy lost momentum in the first half of the year.
The Institute for Supply Management’s factory index rose the most in three months to 51.7 in October, from September’s figure of 51.5. As the number above 50 signals expansion, the index surpassed the expected 51.0. A continuous hike in the manufacturing industries will make-up for three straight months of contraction, and will create more jobs.
Unemployment: Fewer Americans than forecasted filed for first-time claims for unemployment last week, indicating that demand is still resilient enough to maintain current employment levels. The number of Americans filing applications for unemployment benefits fell by 9,000 to 363,000, below the expected 370,000.
Data for certain cities in the US were estimates, as businesses were closed due to Hurricane Sandy that devastated the Northern East Coast. The pace of dismissals may indicate that companies are poised to boost hiring should the economy avert damage should US lawmakers find a way to resolve the fiscal cliff of tax increase and spending cuts at the beginning of next year.
The US economy generated 171,000 jobs in October, surpassing the expected 125,000 by far after a revised 148,000 gain in September. The Unemployment rate ticked up to 7.9 percent this month from 7.8 percent the previous month. The jobless rate rose as more Americans entered labour force.
Europe
Greece back in picture: Greece returned center stage with the 2013 budget, and fears that the nation might not be granted the November ¤31.2bn tranche, and might be forced to bankruptcy as the government struggles to pass needed austerity measures by the EU and the IMF. The Greek constitutional court ruled that the reform to the pension fund is unconstitutional reviving the political risks and fears, adding more pressure on the market.
Moreover, Greek Prime Minister Samaras faces more challenges to please lenders and to pass the ¤13.5bn austerity package. International lenders have so far pledged funds totaling ¤240bn to Greece, which also had ¤100bn written off its debt by private-sector investors this year in the biggest restructuring in history.
German Chancellor, Angela Merkel’s government is willing to consider an ECB proposal for a buyback of Greece’s debt. The Frankfurt-based institution, which holds about ¤45bn of the country’s sovereign bonds, views any voluntary haircut as monetary state financing, which is prohibited by its founding treaty.
Italian bond auction: Italy’s five and 10-year borrowing costs fell to their lowest level since May 2011 at an auction last week, as big redemptions helped offset concerns about domestic political instability. Borrowing costs for the five-year paper came in at 3.8 percent, down from 4.09 percent at a similar sale one month ago.
The treasury placed the maximum-targeted amount of ¤4bn of its bonds maturing November 2017. At the same time Rome sold ¤3bn, also the top amount planned, of a 10-year bond with a yield of 4.92 percent, down from 5.24 percent a month ago.
United Kingdom
PM under pressure: British Prime Minister David Cameron endured a surprise political battle over Britain’s role in Europe. A large group of euro-sceptic conservatives rebelled against the Conservative Party Leader, Cameron. The rebels joined hands with the opposing Labour Party to defeat a proposal backed by the prime minister on the European Union’s pending ¤1 trillion budget.
Manufacturing PMI: The manufacturing sector shrank more than expected in October, as companies received fewer orders and costs rose at a faster pace, ending a run of more hopeful data on the economy. The Manufacturing Purchasing Managers’ Index’s (PMI) dropped to 47.5 from a downwardly revised 48.1 in September, dipping further below the 50 mark, which separates growth from contraction.
The PMI plunged below economists’ expectation of 48.0, after positive surprises from third quarter growth numbers and retail and credit figures. The UK economy is still struggling to break a cycle of poor growth and recession, plagued by the biggest budget cuts in half a century and the debt turmoil, which has hammered its trading partners in the eurozone.
Commodities
Oil drops: Oil fell towards the end of the week on speculation that the shutdown of refineries on the US east coast due to Hurricane Sandy will add to already sufficient supplies. Crude fell 2.2 percent to $85.21 a barrel, while Brent fell to $105.82 a barrel.
Kuwait: Kuwaiti Dinar at 0.28170. The USDKWD opened at 0.28170 yesterday morning.
The Peninsula
