Markets started the week with a relatively stronger US Dollar, ahead of the Federal Open Market Committee. Uncertainty overwhelmed the greenback in the FX markets. The lack of progress on averting the “fiscal cliff” of steep tax hikes and spending cuts have weighed on the US Dollar and the US economy. The negotiations have hit a wall as US House of Representatives Speaker John Boehner and President Barack Obama met on Thursday to discuss the unsettling problem, with both sides voicing frustration over the situation.
The Euro started the week at 1.2891. The single currency then advanced against the US Dollar throughout the week, as frustration and uncertainty emerged in the US over the “Fiscal Cliff” gridlock. The EUR rose steadily against its American counterpart, after the FOMC statement, breaking the 1.3050 levels. The Euro continued its rise on Thursday, after EU ministers agreed to for a USD 64 billion payout for debt-stricken Greece. The single currency hiked until the end of the week, to close at 1.3163. The Sterling Pound endured a positive week. Cable opened the week at 1.6040, only to surge on Tuesday to reach 1.6120, after Italy’s Prime Minister said he intends to resign, boosting demand for the safety of UK assets. The Sterling Pound then dropped to 1.6085 after a report showed that a majority of UK manufacturers are still seeing a decline of orders. Cable followed suit with the Euro, hiking on Friday to close at 1.6174. The Japanese Yen opened the week at 82.49, weakening against the US Dollar throughout the week, to touch a high of 83.96 on Friday as prospects of more easing by the BOJ appear in the markets. The Japanese Yen closed the week at 83.52. The Swiss Franc opened the week at 0.9345, only to strengthen against the US Dollar, as investors seek the safety of the Swiss Franc from global easing programs and political uncertainties. The CHF closed the week at 0.9178.
FOMC
In the FOMC meeting this week and for the first time, the committee linked the outlook for its main interest rate to unemployment and inflation, and said it will expand its asset purchase program by buying $45 billion a month of Treasury securities starting in January to spur the economy. Rates will stay low “at least as long” as unemployment remains above 6.5 percent, and if the inflation is to be no more than 2.5 percent. The thresholds replace the Fed’s earlier view that rates would stay near zero at least through the middle of 2015.
Unemployment Claims
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. Jobless claims dropped 29,000 from 372,000, down to 343,000, beating the forecast of 369,000. 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.
Retail Sales Rise
Retail sales in the US rose in November as demand for automobiles rebounded and holiday shoppers snapped up electronics and clothes. The 0.3 percent gain followed a 0.3 percent decrease in October. The expected strengthening in retail sales growth was largely informed by indications of a sharp recovery in auto sales that was expected to send sales at dealerships up 4.0 percent after Hurricane Sandy sent sales down 1.9 percent in October.
Europe
Greece Approved for Payout
Greece drew enough bonds to its sovereign debt buyback to meet the International Monetary Fund’s target to qualify for aid. European Governments have agreed to provide the extra aid for Greece, approving a payout of EUR 49.1 billion of loans through March 2013. The EU ministers have also stated that they are willing to take “additional measures” incase Greece’s debt reduction change course.
German ZEW Economic Sentiment
German investor confidence jumped in December, surpassing all expectations, on speculation Europe’s largest economy will gather momentum next year. The ZEW index climbed to 6.9 from -15.7 in November, against a forecasted -11.5.
German Flash Manufacturing PMI
German Flash Manufacturing (PMI) continued to decline during the latest survey period and at a faster pace than in the previous month, it dropped to 46.3 from 46.8 in November. The fall reflected client uncertainty about the direction of the economy and a desire to keep stocks to a minimum.
United Kingdom
Governor King Speaks
Bank of England Governor Mervyn King said last Monday that he was concerned that countries will increasingly resort to “actively managed exchange rates” next year, in place of domestic monetary policies, if the global economy remains unbalanced.
The BoE Governor warned that too many countries were trying to weaken their currencies to offset the impact of the slow global economy and the trend could grow next year. Sir Mervyn King outlined the external threats facing the struggling UK economy, including the euro zone crisis and the US “fiscal cliff”.
Claimant Count Change
UK jobless claims unexpectedly fell in November and a wider measure of unemployment dropped the most in 11 years, underlining the flexibility of the labor market in the face of a weak recovery. Unemployment benefit claims dropped in November by 3,000 to 1.58 million. The unexpected drop signaled that the economy is doing better after it emerged from the recession during the third quarter.
Japan
Core Machinery Orders
Machine orders rose in Japan for the first time in three months, which added to signs that Japanese companies boosted their confidence, where it is highly expected that Japanese economy will back to growth track in 2013. Orders index reading recorded an actual of 2.6 percent, compared with market expectations of 3.0 percent, while the previous reading recorded -4.3 percent.
The Peninsula
