Better Risk Appetite in Markets :#NBK#KUWAIT

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United States

Lower Greenback as Positive Sentiment Rules

Just days after rising Spanish yields spurred fears of a Spanish default, it seems that risk sentiment is back on the positive side again. First, the #IMF stated it had some optimism in reference to the global economic growth and revised the world’s economic growth for 2012 to 3.5% from an earlier 3.3% forecast. 

Additionally, Spanish and French bond auctions saw relatively good demand from investors, with both countries being able to raise as much capital as planned. Last, the good economic figures also helped in taming risk aversion and giving a boost to risky assets.

Naturally, FX markets witnessed a sell-off of the #US Dollar against major counterparts as a result of this improved risk sentiment, which shows in the performance of the Dollar Index. The Index started the week at 79.90, and after rising swiftly for the first day, broke lower and at 79.20.

The Euro had a positive but weak momentum against the US Dollar, mainly hurt due to crosses against other currencies such as the Sterling Pound. After opening at 1.3080, the single currency reached a low of 1.2995 but found a stable support there. The single currency broke higher afterwards to a high of 1.3230 before ending the week at 1.3220. The Sterling Pound had the strongest performance last week, boosted as previously stated by the EURGBP cross trading. After opening around the 1.5850, the Pound had an upward move to a high of 1.6150, and ended sessions at 1.6120. The Swiss Franc followed suit with the Euro, strengthening against the greenback from an opening level of 0.9195 to 0.9100, and closed at 0.9090. The Japanese Yen was the exception last week, with USDJPY rising from a low of 80.95 to a high of 81.80, and closing at 81.50.

Retail Sales Climb More than Forecast

Retail sales in the U.S. rose more than forecast in March as Americans snapped up everything from cars and furniture to clothes and electronics. The 0.8% gain was almost three times as large as projected and followed a 1% advance in February, and was higher than the expected increase of 0.3%. The improving job market is giving households confidence to sustain spending in the face of higher gasoline costs, boosting sales at chains such as Gap Inc. and Target Corp. Strengthening consumer demand raises the odds that the world’s largest economy will weather a recession in Europe and slower growth in China.

Previously Owned Home Sales Unexpectedly Fell in March

Sales of previously owned US homes unexpectedly fell in March for the third time in the last four months, showing an uneven recovery in the housing market. Purchases dropped 2.6% to a 4.48 million annual rate from 4.6 million in February, according to official figures released last week. In January, sales at a 4.63 million rate were the strongest since May 2010, and economists had called for an increase to 4.61 million last month. Residential real estate remains the economy’s soft spot, challenged by stricter lending standards, lower home values and the threat of more foreclosures. An improved labor market and mortgage rates near historic lows have yet to stoke bigger gains in demand.

US Factories Cool for the First Time in Four Months

Production at US factories dropped in March for the first time in four months, as the industry cooled following the strongest surge in three decades. Manufacturing, which makes up about 75% of industrial output, decreased 0.2% last month as appliance and furniture makers cut back. The decline followed a revised 3.4% gain from December through February that marked the biggest three-month jump since March 1984. The rebound in manufacturing that helped the world’s largest economy climb out of the recession in June 2009 may now be giving way to gains among service industries, including retailers, as consumer spending grows.

Europe

Euro Zone Trade Surplus Contracts More than Estimated

The Euro region’s trade surplus narrowed more than economists had estimated in February as increased demand for imported goods outpaced exports. The surplus shrank to a seasonally adjusted 3.7 billion Euros from a revised 5.3 billion Euros in January, while economists had forecast a drop to 5 billion Euros. A breakdown of the figure shows that imports increased 3.5% in the month, while exports were up 2.4%. European Central Bank President Mario Draghi said earlier that, while economic-growth indicators had “broadly stabilized at low levels” after a 0.3% contraction in the fourth quarter of 2011, the outlook “remains subject to downside risks.”

Spanish Debt Auction

Investors showed a healthy appetite for Spanish debt last week but demanded a higher borrowing rate in an auction that was a key test of confidence in the government's ability to get a handle on its debts. The Spanish Treasury auctioned EUR 2.54 billion in two- and 10-year bonds at the top end of targeted demand. It had set a range of EUR 1.5 billion to EUR 2.5 billion for the sale. The interest rate, or yield, on the 10-year bond was 5.7%, up from 5.3% at the last auction on April 4. Demand was more than double the amount sold, down from about triple at the last auction. But that hasn't completely quelled the nervousness over Spanish debt. The average yield for the 10-year bond dipped in its initial reaction to the auction, but then reversed direction and rose to more than 5.9%. This was attributed in part to investors rushing to safer bets such as German bonds, which have seen their prices rising.

Inflation Exceeds Estimate in March

European consumer prices increased at a faster pace than initially estimated in March, driven by energy costs, complicating the European Central Bank’s task as it tries to push the inflation rate below its 2.0% limit.      Inflation in the 17-nation euro region held at 2.7% for a fourth month. This number is higher than the 2.6% increase that markets were expecting. The European economy may struggle to gather strength as budget cuts and rising energy prices erode consumer spending and company investment.

German Investor Confidence Increases to Two-Year High

German investor confidence unexpectedly rose to a two-year high in April, suggesting Europe’s largest economy can weather the resurgent debt crisis in the euro region’s periphery. The ZEW index of investor and analyst expectations, which aims to predict economic developments six months in advance, increased to 23.4 from 22.3 in March. That was the fifth straight gain and the highest reading since June 2010, and investors were expecting a drop to 19. Germany may avoid a recession as unemployment at a two-decade low bolsters domestic spending, helping to offset waning demand for its exports across the Euro region as austerity measures bite.

Euro Zone Consumer Confidence Unexpectedly Drops

Even though confidence is surging regarding the German economy, Euro-area consumer confidence, which is part of a broader economic-sentiment indicator, unexpectedly fell in April for the first time this year. The consumer confidence index dropped to -19.8 from -19.1 in March, marking the first decline since December. Surging unemployment rates from Greece to Italy and rising borrowing costs in Spain have fueled concerns that the debt crisis is not under control. While European Central Bank President Mario Draghi has stated that the Euro area economy is showing signs of stabilization “at a low level” after the central bank’s offering of three-year loans, the ECB still predicts a contraction in the region this year.

United Kingdom

Inflation Back on the Rise

UK inflation unexpectedly accelerated in March for the first time in six months, driven by prices for food, clothing and recreation and culture. Consumer prices rose 3.5% from a year earlier, up from 3.4% in February, and higher than the 3.4% forecast. In a change to recent history, energy proved to be a drag on inflation, with the largest downward pressures to the change in CPI coming from electricity, gas & other fuels and transport. Analysts still expect the inflation rate to resume its decline. The figures also reduce the scope for the Bank of England to pump more monetary stimulus into the economy. The Bank of England forecasts inflation, which has been above 2.0% since December 2009, will hit that target by the end of the year.

MPC Meeting Minutes Surprise Markets

The minutes from the latest meeting of the Bank of England’s Monetary Policy Committee (MPC) reveal that one of the policymakers, Adam Posen, changed his long-held view on the need for more quantitative easing (QE). Mr. Posen has been the most dovish member of the committee for many months and it is a genuine shock that he has changed his mind and said that further injections of cash into the economy is not required at this time. It is thought that Mr. Posen changed his mind because of concerns that inflation is not going to fall as quickly or as far as previously thought, and stated that the bank of England may have to change its policies if core inflation failed to show a sustained fall. In fact, the minutes from the MPC’s last meeting reveal that the committee is now concerned that high inflation will last longer than previously forecast. This is likely to influence them to put any more QE on hold. However, David Miles was the only member of the nine-man committee to vote for more QE. He called for a further £25 billion of funds to be added.

UK Unemployment Unexpectedly Falls

UK unemployment has fallen to 2.65m in the three months ending in February, to a rate of 8.3%, according to the Office for National Statistics. The number was down 35,000 on the quarter and is the first quarterly fall in unemployment since the three months to May 2011. Youth unemployment has also fallen, with the number of unemployed 16 to 24-year-olds down to a rate of 22.2%.

Kuwait

Kuwaiti Dinar at 0.27775

The USDKWD opened at 0.27775 on Sunday morning.

Rates – 20 April 2012

	Previous Week Levels				This Week’s Expected Range		3-Month
Currencies	Open	Low	High	Close	Minimum	Maximum	Forward
EUR	1.3080	1.2995	1.3230	13220	1.2980	1.3480	1.3225
GBP	1.5850	1.5820	1.6150	1.6120	1.5890	1.6480	1.6115
JPY	80.95	80.30	81.80	81.50	79.60	84.20	81.45
CHF	0.9195	0.9085	0.9250	0.9090	0.8930	0.9340	0.9075