KUWAIT CITY, Oct 26: The US Dollar dramatic bull run continued last week, breaking some major levels last seen years ago against G7 currencies, with the exception of the Japanese Yen. The US Dollar also strengthened spectacularly against the emerging markets currencies, where fears over a global slowdown have sparked panic selling. The Euro started the week at 1.3410 and closed at 1.2623, a 20-month low. Sterling slumped to its lowest against the Dollar in five years, falling during the week more than 20 big figures to the 1.5200 level. The Japanese Yen was still benefiting from the sharp drop in equity markets and the unwinding of carry trades, managing to touch a high of 90.93 on Friday compared to its earlier levels of 102.44 at the beginning of the week. The Swiss Franc and Canadian Dollar weakened to reach respective lows of 1.17 and 1.28 against the US Dollar. Overall, the FX markets witnessed a very volatile week ending with severe illiquidity on Friday. Surprises in the Housing Market The number of foreclosure notices for the month of September came at 81,312, easing down from the record high in August, but still up 21% from the same period last year. Since August 2007, more than 851,000 homes have been repossessed by lenders. September’s existing home sales figure surprisingly increased-by 5.5%, the biggest gain since July 2003. In parallel, the US administration declared that it is preparing a $40 billion proposal to help curbing housing foreclosures. New $540 Billion Plan for Money Market Funds The US Federal Reserve said on Tuesday it would finance up to $540 billion in purchases of short-term debt from money market mutual funds. Under this scheme, the US Central Bank will lend money to five special purpose vehicles, managed by JP Morgan, and tasked to purchase short-term assets from money market funds. These assets would be low-risk papers, including certificates of deposits, commercial papers and banks notes with three-month maturities or less. “I Need a Job!” The number of US workers filing new claims for jobless benefits rose by a larger than expected 15,000 last week, reinforcing evidence on the weak state of the labour market in the US. The year-to-date job losses account to 760,000. Thousands of layoffs were declared this week: Goldman Sachs planning to cut 10% of its workforce (more than 3,000 jobs) along with large corporates such as Yahoo, Pepsi, General Motors all cutting additional thousands of jobs within the upcoming weeks. Money Market Rates Easing Down Money markets rates fell this week in a sign that the programmes of the central bank and the liquidity injections are easing the recent freeze in short-term lending. The 3-month USD Libor, which is the cost of 3-month interbank USD borrowing, dropped from 4.41% to 3.51% during the week. Additional Fiscal Stimulus on the Road Federal Reserve Chairman Bernanke endorsed additional fiscal stimulus saying the credit crunch is “hitting home” and that lawmakers “should consider including measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers”. White House Press Secretary said officials are “open” to the idea of a new plan and would “look carefully” at suggestions. Greenspan on the Credit Crunch Former Federal Reserve Chairman Alan Greenspan told Congress on Thursday he is “shocked” at the breakdown in US credit markets and said he was “partially” wrong to resist regulation of some securities. He expected the unemployment to jump further, and re-assured that the 700 billion Dollar TARP was necessary to avoid more serious reduction in credit. Europe Bad Numbers More bad numbers came out this week, including the highest four-and-half year unemployment rate in Spain, which came at 11.3 percent for the third quarter up from 10.4 percent in the second quarter. The Eurozone manufacturing PMI dove to 41.3, its lowest since April 2006. More governments support The French government said it will inject 10.5 billion euros ($14 billion) into France’s six largest banks to shore up their balance sheets and ensure they continue to provide credit to consumers and businesses. The capital will come in the form of subordinated loans where Credit Agricole would receive 3 billion, BNP Parisbas 2.55 billion, Societé Générale 1.7 billion, Crédit Mutuel 1.2 billion, Caisse d’épargne 1.1 billion and Banque Populaire 0.95 billion. In parallel, France and Germany allowed their local carmakers to tap the government’s rescue plans. The German and French carmakers could use the state guarantees for new lending of up to 400 billion and 320 billion euro respectively. Sarkozy on the Defensive President Nicolas Sarkozy declared that France would set up a new “strategic investment fund” to stop French companies from falling into the hands of foreign “predators”. “I will not be the French president who wakes up in six months time to see that French industrial groups have passed into other hands,” he said in a speech. United Kingdom Sinking Sterling Sterling Pound slumped to its lowest level against the dollar in 7 years as markets came to prospects of a deep recession after comments from government and BoE officials of a likely slowdown looming for the kingdom. The pound freefall was severe during the week, falling as low as 1.5269 on Friday, almost 20 big figures from the week’s opening. UK Economy Shrinks Further The British economy in the third quarter of 2008 shrank for the first time in 16 years. The quarterly GDP figure published by the National Statistics came at a lower than expected -0.5% for the third quarter in 2008, the biggest drop since 1990 and the first contraction since 1992. The GDP figures that came on Friday followed the gloomy UK economy picture presented by the Prime Minister Gordon Brown and the Bank of England Governor Mervyn King, who admitted that the UK economy is in danger of a deep recession. Statistics and polls showed that the slowdown hit most of Britain’s economy including retail, industrial and financial services. Retail Sales Down UK retail sales were down 0.4 percent between August and September according to the Office of National Statistics. Although this figure is negative, it came better than expected, where analyst have estimated a sharper drop. Japan Unwind of Carry Trades Pushes Yen Higher The Japanese Yen surged broadly in the past week dropping more than 12 big figures against the US dollar during the week, hitting multi-year highs versus major currencies as tumbling share prices intensified risk aversion which lead to a massive unwind of carry trades, Global market equities dropped drastically on Friday, pushing the Yen further to 90.93, a level last seen in 1995. Kuwait Dinar at 0.26855 The USD/KWD moved in tandem with the changes in the foreign exchange market, as it opened at 0.26855 on Sunday morning. Global OPEC Meeting and Oil Falling Prices Oil prices continued the sharp drop, falling to 63 dollars per barrel, a level seen in May 2007. In an emergency meeting in Vienna, the ministers of the Organization of the Petroleum Exporting Countries (OPEC) agreed on Friday to cut the production by 1.5 million barrel per day, effective on the 1st of November. Crude oil has dropped by 35% since the beginning of 2007, and more than 55% from its all-time high of 147 dollars per barrel reached in July 2008. China’s Growth Back to Earth China reported last week a drop in its annual growth rate to 9% in the third quarter of 2008. Analysts have interpreted this drop as the latest and most definitive signal that the global economy is slowing, shown earlier in the falling freight rates, down 90% from the peak in May 2008.

Source