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MONDAY, MAY 8, 2017 BUSINESS ‘En Marche’ for a third interest rate hike NBK MONEY MARKETS REPORT hile the political soap opera contin- and continued to surge reaching a six-month the indices that track new orders and growth of economic activity was a strong investors at a time of weak income growth ues in Washington with the House of high of 1.1000 on Friday following the FOMC employment. increase in incoming new business. New cannot be strengthening the resilience of our WRepresentatives passing the health- meeting and supported by the GDP figures Non-manufacturing index on the other orders rose for the twenty-ninth month run- economy. Nor can a high concentration of care reform bill aimed at repealing and replac- coming on expectations. With the second hand rose to 57.5, the second-highest since ning, with the rate of expansion staying close interest-only loans.” In such a case, “an other- ing the Affordable Care Act; the Senate round of the French Presidential Election on October 2015 from 55.2 in March. The results to March’s high. wise manageable downturn could be turned approved a $1.1 trillion spending bill that will Sunday, the centrist candidate Emmanuel are in line with projections for a rebound in into something more serious”. fund the federal government through Macron is leading the polls and expected to economic growth this quarter coming off the UK manufacturing Another negative surprise came on the September and prevent a shutdown. easily win the election. The currency closed weakest pace in three years. The UK construction PMI rose to 53.1 in back of the disappointing trade surplus On the monetary policy front, the May the week at 1.1000. The surge in non-factory orders also April against expectation of 52 and up from falling more than expected in March to AUD FOMC meeting offered little clues this week as The pound sterling continued to be sup- extended to customers beyond US borders 52.2 in March. According to the report, “April’s 3.1 billion, despite upward revisions across the Committee kept rates unchanged and was ported ignoring the risks emanating from export demand climbed to the highest level in survey reveals a positive start to the second the prior four months, with February now the constructive on economic developments the Brexit negotiations. Cable held its nearly a decade. On the employment front, US quarter of 2017, with a robust upturn in civil second highest on record at AUD 3.7 billion. despite the recent softening in GDP growth ground above 1.2900 and is expected to non-farm payroll recovered in April after the engineering activity helping to boost the The trade data implies a large net export drag and the drop in inflation. The committee did trade with high volatility should the political disappointing March figures. April non-farm construction industry. There were also more in the first quarter pressuring down econo- not give any signal on the next rate hike or fight with the EU persist. The sterling closed data came at 211K versus an expected 194K encouraging signs from the house building mists’ GDP forecast. changes in the Fed balance sheet policy. the week at 1.2984. setting the stage for a potential interest rate sector, as growth recovered to its strongest Finally, the RBA latest Statement showed a On growth, the statement acknowledged, The Japanese yen reached a six-week high hike in June. According to the report, job gains so far this year. However, the performance of small upgrade to GDP, with growth by June however dismissed the latest soft data noting at 113.04 against the dollar but softened back occurred in most sectors ranging from leisure the commercial building sector remained 2018 now forecast between 2.75 and 3.75 that consumer spending remain solid, and to close at the 112.72 level on Friday. and hospitality to finance and mining sectors. subdued in the context of the past four percent. The Bank said that it had greater that the Q1 slowdown was likely to be tempo- On the commodities side, oil prices contin- Furthermore, unemployment claims for the years.” Britain’s factories enjoyed their fastest confidence that inflation would pick up, but rary. Sentiments were more upbeat on busi- that’s in the context of an inflation forecast ness investment. Neither the growth slow- that doesn’t return to the Bank’s target range down nor the decline in core inflation in until June 2019. The cash rate is likely to be March changed the Committee’s expectations stuck at 1.5 percent for longer than the mar- that growth will continue at a moderate pace, ket has priced. the labor market will strengthen somewhat further, and inflation will stabilize around 2% China property sales over the medium term. According to data from the Chinese real On the data, the FOMC acknowledged that estate services, property sales volumes in “the labor market has continued to strengthen China’s top 50 cities declined by 19 percent even as growth in economic activity slowed. on a yearly basis and 10 percent on a month- Job gains remain solid, on average, in recent ly basis. This reflects the adverse impact of months, and the unemployment rate declined. the recent round of tightening measures that Household spending rose only modestly, but have been rolled out since mid-March. The the fundamentals underpinning the contin- government has been trying to curb property ued growth of consumption remained solid”. prices in China this year. Inflation measured on a 12-month basis Bank of Japan Governor Kuroda said that recently has been running close to the “the mindset is still quite cautious about Committee’s 2 percent. inflation expectations, but I’m quite sure Market probability of a hike stood at 90 that with continuous accommodative mone- percent for June in comparison to 67 percent tary policy, supported by fiscal policy, we’d prior to the FOMC meeting. ued their slide by the end of the week, falling previous week came at 238K against an growth for three years last month from 54.2 be able to eventually raise wages and prices On the global economic front, the 2.9 percent on fears of rising output. Crude oil expected 246K. Finally the unemployment in March to 57.3 in April on the back of strong significantly”. Eurozone growth may accelerate more and closed around the $46, back to levels last seen rate came at 4.4 percent as a result of the per- demand at home and abroad, according to a The projected growth rate of 1.5 percent is the ECB monetary policy guidance could before the OPEC deal, as the shale revival formance of both public and private sector. survey that will temper worries about a “not great” but it is well above the medium- change as the recovery picks up, ECB chief appears to be making the OPEC cuts ineffec- Brexit-driven economic slowdown this year. term potential growth rate which means that economist Peter Praet said, reinforcing expec- tive. After dipping below $44 Friday, prices Eurozone economic growth The manufacturing sector, which makes up the output gap will shrink and become posi- tations for a more upbeat economic assess- closed the week slightly higher than the low, Euro area economic growth accelerated to about a tenth of the UK economy, enjoyed tive while the labor market continues to ment from the bank. Economic growth is meanwhile, shale drillers are pressing ahead a six year high at the start of the second the strongest pick-up in new work since the tighten. In that event, wages and prices broadening and there is potential for a posi- with their longest expansion since 2011. quarter. This was signaled by the final start of 2014 and smashed expectations in would eventually rise to achieve the 2 per- tive surprise in the second quarter noting that Eurozone PMI Composite Output Index rising April. Firms also took on new workers at a cent inflation target around the fiscal year inflation was also set to rise gradually to near Mixed US Data to 56.8 in April, up from 56.4 in March and faster pace and ramped up production. 2018. He acknowledges that “headline infla- the ECB’s target by 2019. US manufacturing missed expectations in the earlier flash estimate of 56.7. Activity has tion has been quite slow to adjust upward” in On the foreign exchange side, the dollar April as employers reported less hiring and a expanded for 46 months in a row. Output RBA concerned about household debt part because of weakness in oil prices. index reached a 7-month low at 98.543 on slower pace of incoming orders, according to growth accelerated at manufacturers and Reserve Bank of Australia Governor Lowe Friday after an upbeat UK and Eurozone fig- the ISM report. Indeed the purchasing man- service providers, with rates of increase hit- said that “the recent increase in household Kuwait ures helped building pressure on the dollar. ager’s index slipped to 54.8 from 57.2. ting 72-month records in both cases. The debt relative to our incomes has made the Kuwaiti dinar at 0.30415 The Euro continued to shun the French Economists had forecasted a reading of 56.5, slightly sharper expansion was again regis- economy less resilient to future shocks. The USDKWD opened at 0.30415 yester- election risk and opened the week at 1.0905 with the biggest decrease was recorded in tered in manufacturing. Underpinning Double-digit growth in debt owed by day morning.