The US Dollar lost its footing against most of its counterparts as risk appetite staged a return at the beginning of the week, driving investors to shift to riskier assets amid better-than-expected data from major economies combined with solid earnings in the US. The US Dollar index started the week at 79.67, only to drop to a low of 78.94 as better data helped boost the risk rally. However, the Dollar recouped some of its losses as the market shifted its focus towards the outcome of the EU summit. Additionally, disappointing earnings released from Google and Microsoft at the end of the week triggered mild risk aversion on Friday. The Index closed the week at 79.62.
The Euro opened the week at 1.2951 and quickly gained against the greenback to reach a high of 1.3140 mid-week, as Moody’s refrained from reducing Spain’s credit rating to junk status and as lower Spanish 10-year yields joint with better economic data from the US lifted sentiments in the markets. On Friday, the single currency traded sideways as news showed that EU leaders agreed upon the banking union and deeper EU integration. However, Germany claims that outstanding questions regarding budget and implementation will stall progress for a year. The Euro reached a low of 1.2891 and closed the week at 1.3024.
The Sterling Pound followed suit, and reached a high of 1.6178 mid-week after opening the week at 1.6072. However, cable dropped dramatically towards 1.6021, as comments from a Bank of England policymaker suggested more easing in the near term. The announcement fuelled expectations that the UK’s AAA rating was at risk as the markets focused on the country’s public borrowing numbers. However, the figure exceeded expectations and gave a boost to sentiments. Cable regained some of its losses and closed the week at 1.6004.
The Japanese Yen dropped throughout the week against the greenback as the improved sentiments in the Euro area reduced demand for the relative safety of the currency. Additionally, investors still suspect that Japanese officials may intervene in the FX markets. The USD/JPY opened the week at 78.44 and reached a high of 79.47. The currency closed the week at 79.32.
The Australian Dollar gained dramatically last week as signs of improvement in the global economy supported demand for riskier investments. The Aussie opened the week at 1.0233 and gradually gained throughout the week to reach a high of 1.0412. The Aussie eased on Friday and closed the week at 1.0331.
On the commodities side, Gold traded in a volatile matter last week but remained subdued throughout the week amid solid data from major economies reducing prospects of further easing initiatives. The precious metal opened the week at $1,754 and quickly dropped to its week low of $1,729. Gold recouped its loss to reach a high of $1,753 mid-week but positive sentiments triggered by better growth in China, a successful Spanish bond auction and better housing numbers from the US reversed the movement and pushed gold to close at $1,721.
Improvement in the US Housing Market: Constructions of new-homes in the US surged in September to the highest level in four years, a sign that the industry is on the path to recovery. Housing Starts jumped 15 percent to an 872,000 annual rate last month, the most since July 2008 and exceeding all forecasts. A pickup in sales stoked by record-low mortgage rates and population growth indicates construction can continue strengthening, contributing more to economic growth.
In parallel, Americans took out more residential construction permits in September than at any time in the past four years, adding more signs that the market will continue to improve. Permits rose by 11.6 percent to reach 894,000, exceeding both expectations of 810,000 and the prior result of 803,000.
Meanwhile, Sales of previously owned US homes held near a two-year high in September, restrained by a lack of supply that is pushing prices higher. Purchases of existing houses decreased 1.7 percent to a 4.75m annual rate, matching expectations. The median prices from a year earlier jumped by the most since 2005 as inventories declined.
Europe
EU Summit Sets Route for the Euro-Area Bank Supervision Initiative to Start in 2013: European leaders committed to their goal of establishing a Euro-area bank supervisor by year-end, opening the prospect of direct aid to Spain’s banking sector. The EU will seek to agree on a framework that makes the European Central Bank the main supervisor by the beginning of January 2013. The new system, intended to break the link between banks and governments at the root of the region’s financial crisis, will phase in over the next year and could cover all 6,000 Euro-area banks by January 1st 2014. The supervisor can “probably be effectively operational,” allowing the Euro bailout fund to lend directly to banks, as soon as 2013, EU President Herman Van Rompuy said after the meeting.
Spanish Aid: Prime Minister Mariano Rajoy wants the Euro area’s firewall to inject cash directly into its ailing banks, to relieve it of the burden of paying back as much as €100bn ($131bn) in bank-rescue loans. The prospect of direct bank rescues became less urgent after stress tests revealed that Spain’s lenders required less than half of the funds approved by Euro-area states. Spain estimated on September 28 that it might need about €40bn to recapitalise its banks. The government has played down the necessity of seeking additional aid while pushing for progress on a European banking union. “The direct recapitalisation of banks can take place when the banking supervision process is in place and approved by the Euro group,” Rajoy told reporters. “I don’t know when that will be.”
United Kingdom
UK Consumer Price Index: The Consumer Prices Index (CPI) annual inflation stands at 2.2 percent in September 2012, down from 2.5 percent in August. This is the slowest rate of inflation since November 2009, when it was 1.9 percent.
UK Unemployment Drops: UK jobless claims unexpectedly fell in September and a wider measure of unemployment dropped to the lowest rate in more than a year as the London Olympics helped push employment to a record. Jobless-benefit claims fell 4,000 from August to 1.57m. The Unemployment rate fell by to 7.9 percent from the previous 8.1 percent.
China
China Gross Domestic Product (GDP): China’s industrial production, retail sales and fixed-asset investment accelerated in September, reducing the urgency for added stimulus to support the economy after a seven-quarter slowdown. Gross domestic product expanded 7.4 percent in the third quarter from a year earlier.
Kuwait
Kuwaiti Dinar at 0.28085: The USDKWD opened at 0.28085 on Sunday morning.
The Peninsula
