US Dollar (USD):
It was a week of turmoil that began with dismal ISM manufacturing index data and ended with bad employment numbers and the surprise resignations of Treasury Secretary Paul O’Neill & White House economic advisor, Lawrence Lindsey. The dollar ended sharply lower against the European majors and shed most of its earlier gains against the yen.
US November manufacturing ISM index rose to 49.2 versus 48.5 in October but was well below the forecast of 51.3. US third quarter productivity was upwardly revised to 5.1% from 4.0%. Factory orders climbed 1.5% in October, a shade below the expected rise of 1.7%. The non-manufacturing ISM index jumped to 57.4 in November from 53.1 the previous month, indicating further expansion in the services sector. US weekly jobless claims fell more than expected to 355,000 week ending November 30th compared to 368,000 in the previous week. In contrast, the unemployment rate shot up more than expected to 6% in November, the worst level since April this year. Payrolls showed a surprising drop, declining by 40,000 after a 6,000 gain in October. Economists worry that the persistent weakness in the labor market could further undermine consumer spending and hurt retail sales during the crucial holiday season.
The Dow shed 251 points to close the week at 8645 and the Nasdaq followed suit losing 56 points to finish the week at 1422
Euro (EUR) – (O- 0.9942 H-1.0117 L-0.9866 C- 1.0095):
Euro had a tremendous performance against the majors as the much-awaited rate cut eventually materialised. The ECB cut its repo rate by 50 bps from 3.25% to 2.75%.
The Eurozone manufacturing PMI also indicated a contraction but marginally surpassed the US figure with a reading of 49.5. Eurozone services index showed a 0.1 improvement to 50.2. Germany saw 35k more jobless in November, and Eurozone Q3 GDP rose 0.3% in the quarter and 0.8% annually. Worse yet was the Q4 2002 estimate at 0.2%-0.5% q/q with Q1 2003 expected flat at -0.2%-0.2% q/q. The ECB President Duisenberg stated that the decision to cut rates was unanimous and was prompted by sluggish growth in the Eurozone. He also reiterated his backing for the improved enforcement of the stability and growth pact and called for member nations to push forward with structural reforms.
UK Pound (GBP) – (O- 1.5562 H-1.5784 L-1.5428 C-1.5795):
The pound rose sharply against the dollar thanks to the dismal US and upbeat UK house price data. Britain's Nationwide Building Society reported that UK house prices surged 25% y/y and are unlikely to subside in the near term. The robustness of the UK housing market prompted the BOE to keep its key interest rate unchanged at 4%. The market shrugged off a decline in the UK CIPS services index to 54.9 from 55.6, an unexpected fall in the CBI retail sales balance to 21.0 in November from 25.0 in October as also a 0.7% drop in the UK October manufacturing output.
Japan Yen (JPY) – (O-122.50 H-125.65 L-122.50 C-123.52) :
The yen was jolted on FinMin Shiokawa's comment that the dollar should trade between 150-160 yen. Moreover, MoF official Zembei Mizoguchi declined to comment on Shiokawa's statements but did suggest the FinMin may have based his estimates on purchasing power parity. Later, Shiokawa said that governments should not intervene leaving forex rates to be determined by the market. However, this didn’t have much impact as the Vice Finance Minister for International affairs chipped in saying that the yen’s recent weakness was appropriate and just a correction of its earlier excessive strength.
The Cabinet Office reported an upwardly revised GDP figure for the previous fiscal year ended in March. The data showed that Japan's economy contracted by 1.4% in FY 2001-2002, up from 1.8% contraction reported in the preliminary estimate. Moreover, GDP data for FY 2000-2001 were also upwardly revised, showing growth of a surprising 3.2%, compared with the previous estimate of 1.7%. Data from the MoF showed that Japan's business sentiment in Oct-Dec came in at -5.9. Moreover, capital spending in Q3 fell by 13.9%, declining for the fourth consecutive quarter.
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Source: Mecklai Financial Services
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