Cash-for-clunkers programme noticeable support for euro

Dubai: The week consisted of thin and nasty markets with lots of sudden intra-day swings as many reverse most of last Friday's moves. Money market futures soared; front months setting new record highs, giving the lie to much-hyped economic recovery.

These dragged two-year Treasury yields lower, benchmark US from 1.33 per cent to 1.04 per cent and gilts to probably their lowest yield in at least a century at 0.90 per cent longer dated ones moving along in tandem.

Data released yesterday showed that real GDP in the Euro-zone edged down at an annualised rate of 0.4 per cent in the second quarter. Not only was the outturn the best sequential performance in over a year, it was also not nearly as bad as most investors had expected. Moreover, German GDP actually rose 1.3 per cent (annualised rate) and France registered a similar rate of increase.

What drove the better-than-expected results? A detailed breakdown of real GDP into its underlying demand components will not be available for a few more weeks, so we can only hazard some guesses.

However, it appears that the "cash-for-clunkers" programmes in some countries may be helping. Data released showed that new car registrations in Germany have surged recently, and registrations in France also rose on a year-over-year basis in the second quarter.

Statistical authorities in both Germany and France indicated private consumption expenditures, which would include new car purchases, grew during the second quarter.

Interestingly, real GDP in the Netherlands, which does not have a "cash-for-clunkers" programme, tumbled nearly 4 per cent (annualised rate) in the second quarter. Clearly, "cash-for-clunkers" is not the only reason that real GDP in the euro-zone was better than expected. Statistical authorities also indicated that government consumption expenditures contributed positively to growth as did net exports.

Is the recession in the Euro-zone over? If it isn't now, it will soon be. Although the effect from the "cash-for-clunkers" programme will fade, inventories should add positively to growth over the next few quarters.

Range for previous week: $1.3900- $1.4300 (Dh5.1050 Dh5.2520)

Range for this week: $1.4082- $1.4327 (Dh5.1050 Dh5.2520)

Sterling hit a two-week low against the dollar on Wednesday, adding to losses as investors awaited a reading of UK employment and the Bank of England's (BoE's) inflation report later in the day.

UK labour market data due later is expected to show that the unemployment rate rose to 7.7 per cent in June from 7.6 per cent in May. The claimant count is seen at 25,000 in July, up from 23,800 in the previous month. The BoE's inflation report is likely to show a deeper recession than was factored in before, with inflation likely to remain below the 2 per cent target over a two-year horizon.

Bank of Tokyo-Mitsubishi currency strategist Lee Hardman said traders had been paring some of their long sterling positions ahead of the report due to the possibility that the central bank could also downgrade its growth forecasts.

Recovery from the worst recession has begun as President Barack Obama's fiscal stimulus takes effect, a survey of economists indicated. The new projections, following better-than-anticipated reports on manufacturing, employment and home construction, echo gains in investor confidence that have propelled the standard and poor's 500 stock index to its high for the year.

Range for previous week: $1.6400-$1.6800 (Dh6.0235 Dh6.1710)

Range for this week: $1.6388-$1.6719 (Dh6.0235 Dh6.1710)

US Dollar was under pressure, and the Japanese yen gained after US retail sales disappoint, the dollar may have been the weakest of the majors, but most of the losses occurred during the European trading session. Indeed, the greenback started making headway following a flurry of US economic released that triggered yet another bout of risk aversion, though the Japanese yen was arguably the bigger beneficiary.

Looking to the data on hand, US advance retail sales slipped 0.1 per cent in July, missing forecasts for a 0.8 per cent increase, while sales fell 8.3 per cent from a year earlier. A breakdown of the report shows a 2.4 per cent rise in sales of motor vehicles and parts, thanks to the US government's "cash for clunkers" programme, but beyond that factor most other components fell, including building materials (-2.1 per cent), gasoline stations (-2.1 per cent), and electronics & appliance stores (-1.4 per cent).

Range for previous week: ¥ 95.50 ¥ 99.50 (Dh 0.036915 Dh0.038460)

Range for this week: ¥ 94.40 ¥ 97.72 (Dh0.036915 Dh0.038460)