The major highlights of last week revolved around the continuing worries of reaching a deal regarding the fiscal cliff in the US as well as the eurozone and Greece emergency aid deal. Ever since the US Presidential election has ended, the fiscal cliff has been a hot topic on the table heading toward the deadline by the end of this year.
Last week, representatives from both Republican and Democratic parties suggested that shift in tone may help reaching an agreement. Moreover, different lawmakers expressed confidence that a deal to avert the fiscal cliff could be reached. On the other hand, international lenders failed for the second week to reach a deal to release emergency aid for Greece and will try again this week.
The US Dollar gained some strength toward the middle of last week, as it started the week strong before turning the momentum around and losing some strength towards the end of the week. This is shown in the performance of the Dollar Index, which mounted from a high opening level of 81.26 before erasing some of its gains going towards the end of short week for the greenback, which was curtailed by the long Thanksgiving weekend closing sessions trading at 80.192.
The Euro, on the other hand, was fairly supported over the week, started with somewhat positive note until it slipped against the US Dollar after a downgrade of France’s sovereign credit rating late on Monday. However, the 17-nation currency managed to trade upwards supported by expectation on a definite deal on Greece on Monday and after a better-than-estimated German Ifo Business Climate. The currency started the week trading at 1.2740 levels to a low of 1.2730 before turning the momentum hitting a high of 1.2991 on Friday and ending sessions at 1.2976.
The Sterling Pound had a somewhat similar performance opening at 1.5880 levels, then dropping due to a worse-than-expected Public Sector Net Borrowing figure came on Wednesday, before gaining some strength trading as high as 1.6051 on Friday, closing sessions trading at 1.6028.
The Japanese Yen was the biggest loser last week weakening against the greenback, as a reflection of expectations that elections on December 16 will return a new government in Tokyo, one that could push the Bank of Japan toward more dramatic monetary stimulus. The currency opened the week trading at 81.32 and going as high as 82.84 on Thursday, and closing sessions trading at 82.40 level.
As far as commodities are concerned, Gold rose 1 percent on Monday, recovering the previous week’s losses, on increased risk appetite as the Dollar softened, while violence in the Middle East mounted during the week before reaching an agreement to cease-fire in Gaza on Wednesday.Moreover, talks to resolve an imminent fiscal crunch in the US lent support to the commodity as it was seen trading as safe haven. Therefore, gold was trading last week with a positive momentum opening at $1,713.72 an ounce, and mounting as high as $1,754.46 and closing the week trading at $1,753.00.
On the other hand, oil dropped toward the end of the week, erasing a weekly advance, after a truce between Israel and Hamas held for a second day, easing concern that the conflict would disrupt supplies from producers in the Middle East. The commodity closed the week trading at $88.28 per barrel.
Steady US Housing Recovery is Boosting Economy: From purchases and prices to builder sentiment and construction, the US housing market is making consistent gains. The latest evidence came in the reports last week showed that sales of previously occupied homes rose solidly in October and that builders are more confident than at any other time in six years. However, the existing home sales are near five-year highs; sales rose 2.1 percent in October to a seasonally adjusted annual rate of 4.79m, compared with the 4.69m, previously.
US Unemployment Claims Remain Elevated: The number of people actively seeking unemployment benefits remained elevated for a second week as Hurricane Sandy forced many people to seek temporary assistance. The Labour Department said last week that applications for jobless benefits fell by 41,000 last week to a seasonally adjusted 410,000 applications, versus 451,000 applications, previously.
Europe
Greece Aid Plan is Still Uncertain: Eurozone Finance Ministers, the International Monetary Fund, and the European Central Bank were unable to agree in 12 hours of overnight talks in Brussels last Tuesday on how to make Greek debt sustainable. They want a solution before paying the next loan tranche, which is urgently needed to keep Greece afloat. Several European officials played down the delay, commenting that the disagreements were technical and a deal would be reached when they meet again on November 26.
Moreover, European governments want to give Greece an extra two years, until 2022, to cut its debt to a sustainable level of 120 percent of GDP but the IMF does not agree. In addition, the Europeans, led by Germany, are refusing to write off any loans. Both options would make it easier for Greece to meet the targets in the bailout programme.
More of the troubled eurozone, the credit rating agency Moody’s downgraded France’s sovereign debt by one notch from Aaa, the top rating, to Aa1 last week. It also warned that its outlook on France’s creditworthiness remained negative. Such a downgrade aims to pressure French President Francois Hollande to intensify his reactionary and unpopular austerity policies. Markets proved that the cut did not come as a surprise after Standard & Poor’s downgraded France in January. However, the reaction was short-lived in the market and quickly the attentions were driven back to Euro group meeting.
Euro Area Services and Manufacturing Industries Contract For a 10th Month: Both services and manufacturing output in the euro area shrank for a 10th month in November as the debt crisis continued to weigh on confidence across the currency bloc. A composite index based on a survey of purchasing managers in the services sector fell from 46.0 previously, to 45.7 currently.
German Business Confidence Unexpectedly Climbed: German business confidence unexpectedly rose from a 2-year low in November, signalling growth in Europe’s largest economy may rebound. The Munich-based Ifo institute said that its business climate index climbed to 101.4 from 100 in October, the first gain in eight months.
United Kingdom
UK Public Sector Net Borrowing Falls Less-Than-Expected: The United Kingdom public sector borrowing plunged less-than-estimated in the last quarter. An official report came last week showed that UK Public Sector Net Borrowing fell to a seasonally adjusted 6.5B Pounds from 9.9B Pounds in the preceding quarter. However, the UK economy has spent most of the past year in a recession and is broadly unchanged from a year ago.
Japan
Bank of Japan Refrains From a Third Month of Monetary Easing: The central bank said last week that it would not implement additional monetary easing in November after two consecutive months of easing measures. Therefore, they decided to keep the size of the asset-purchase programme at 66 Trillion Yen. Moreover, the bank voted unanimously to hold its key interest rate at zero to 0.1 percent, as was widely expected. On the other hand, the political risk continues to play a role when it comes to Yen trading; Shinzo Abe, the leader of Japan’s opposition Liberal Democratic Party and a frontrunner to win the election on December 16th, has been pushing hard for more aggressive BOJ moves on easing monetary policy.
Commodities
Gold Recovers Last Week’s Losses: The commodity gained some strength last week, recovering the previous week’s losses, on increased risk appetite as the Dollar softened. In addition, talks to reach an agreement regarding the fiscal cliff in the United States along with worries over the unresolved eurozone debt crisis gave gold some support.
The commodity’s safe haven status would shine in the case of failed talks and political paralysis, while success in avoiding the fiscal disaster may dampen sentiment in gold, which ended the week trading at $1,753.00 for the ounce.
Oil Erases Weekly Advance as Middle East Tension Eases: Crude dropped toward the end of last week, erasing a weekly advance, after a cease-fire agreement between Israel and Hamas held starting late Wednesday, easing concern that the conflict would disrupt supplies from this region’s producers. The commodity closed sessions trading at $88.28 per barrel.
The Peninsula
