It was a relatively light week for US economic figures; however, Retail sales rose 0.3 percent ,while that was well below the 0.6 percent rise expected buy the market, April Retail sales revised higher to show a 0.5 percent increase, helping to keep growth forecasts intact. The Job Openings and Labor Turnover Survey released last week, indicated that the job openings rate rose to 3.1 percent from 2.9 percent in April, marking the highest level since September 2007 when the unemployment rate was at 4.7 percent.
In Summary, early last week the Euro currency rallied slightly reaching a high of 1.3668 against its US Dollar counterpart, soon after the Euro came under pressure after an ECB member, highlighted the central bank’s willingness to deploy additional stimulus measures, including a negative interest rate, to prevent inflation from weakening further in the economy. The Euro currency fell to 1.3510 and closed for the week at 1.3542.
The Sterling Pound started the week on a quiet note, trading in a narrow range between a low of 1.6735 and a high of 1.6830. The Sterling later gained steam and rallied sharply reaching a high 1.6992 after the Bank of England Governor Carney said interest rates could rise earlier than the financial markets currently expect, the currency closed for the week at 1.6970.
The USD/JPY traded in a narrow range between a peak of 102.65 and a trough of 101.57, the Japanese yen maintained its overall weakness after the Bank of Japan said expansion of the monetary base would continue at its current level of JPY 60-70 Trillion per year.
US business inventories increased more than expected, recording their biggest increase since Dec 2013. Inventories improved by 0.6 percent in April well above market expectation of 0.4 percent point rise. A sharp slowdown in the rate of inventory accumulation contributed to the disappointing growth in the first quarter.
The latest improvement in business inventories would help the US growth top a 3.0 percent rise this quarter. Additionally, the Commerce Department said business sales rose by 0.7 percent in April and wholesale sales increase by 1.3 percent in April.
Last week, the European Central Bank issued its monthly bulletin. The Governing Council decided at its meeting on a set of measures to provide additional monetary policy accommodation and to support lending to the real economy in order to raise inflation levels up to 2%.The Main points of the meeting were as follows. “First, The Governing Council decided to lower the interest rate on the main refinancing operations of the Euro system by 10 basis points to 0.15 percent and the rate on the deposit facility was lowered by 10 basis points to -0.10 percent. Second, in order to support bank lending to households and non-financial corporations, the Governing Council decided that the Euro system would conduct a series of targeted longer-term refinancing operations that will mature in September 2018. Third, In line with both its forward guidance and its determination to maintain a high degree of monetary accommodation, the Governing Council decided to continue conducting the MROs as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the reserve maintenance period ending in December 2016.”
UK’s house prices had their biggest monthly jump since 2002, exerting more pressure on the Bank of England to safeguard against risky lending. House prices rallied by 3.9 percent well above market expectation of a rise of 0.7 percent. Halifax’s mortgages director said, “Housing demand is still strong and continues to be supported by a strengthening economic recovery, while low interest rates and falling unemployment were boosting consumer morale.” The International Monetary Fund has warned the United Kingdom government that rising house prices pose the greatest threat to UK’s ongoing economic recovery. They said, “Continuous rising property values could leave households more vulnerable to income and interest rate shocks.” They also called on the Bank of England to enact policy measures “early and gradually” to avoid a housing bubble. While the IMF praised the Bank of England’s policy of forward guidance, they warned that if economic growth expanded more than current forecasts suggest, interest rates might have to rise more quickly in order to control inflation.
Australian Business Confidence held steady last month. The National Australia Bank’s survey of more than 400 firms showed its Index of Business Confidence held at +7 in May, consistent with the long run average. The NAB’s chief economist said, “That result was surprising, with firms still discounting persistently soft levels of business conditions and the negative sentiment surrounding the Federal budget including the post-budget collapse in consumer confidence.”
The Bank of Japan maintained its monetary policy stance and offered a slightly more upbeat view on overseas growth, signaling that the Japanese economy is on course to meet its inflation target next year without additional stimulus. BOJ Governor Kuroda said, “The economy is moving roughly within our expectations. Household spending remains solid as a trend. The positive cycle of the economy is firmly in place, accompanied by clear improvements in job conditions and income.” China’s exports improved in May due to stronger global demand, but a slight fall in imports indicated weaker domestic demand that could continue to weigh on the world’s second-largest economy. Exports grew by 7 percent in May from a year earlier, while imports fell 1.6 percent. China’s trade surplus expanded sharply to $35.9bn in May from April’s $18.5bn. The Chinese government is aiming for total trade to grow 7.5 percent this year. Last year trade grew by 7.6 percent, below the official target of 8 percent.The Peninsula
