Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“Germany, the Netherlands, Austria, Spain and Italy are now all seeing manufacturing grow at the fastest rates for at least two years, and even Greece saw a marked easing in the rate of manufacturing decline”

- Chris Williamson, chief economist at Markit

Eurozone manufacturing recovery gathered pace last month, with manufacturing PMI hitting the highest since June 2011, as the sector expanded across the majority of European countries, including struggling to grow Spain and Italy. A measure of manufacturing activity rose to 51.4 in August, from 50.3 a month earlier, above estimates of 51.3 points. Markit also provided separate PMI figures for a number of European countries, showing activity in Europe’s powerhouse, Germany grew to 51.8 in August, worse than the median estimate of 52.0 points. Among other major economic, activity in the French sector remained unchanged, while manufacturing activity in Italy and Spain jumped to 51.3 and 51.1, respectively.

Looking ahead, the majority of manufacturers expect that the confidence in most Eurozone countries should urge businesses to increase spending, also encouraging consumers to spend more, particularly on durable goods. Furthermore, manufacturing data is allaying some fears the 17-nation economy may contract once again and supporting hopes the area is gradually establishing recovery after exiting prolonged recession in the last quarter. Meanwhile, Mario Draghi is expected to stay pat on monetary policy during monthly policy meeting, which is scheduled on September 5.

USD

“This will transpire even in the face of what is likely to be a markdown to the Fed’s economic forecast. In other words, for all the talk about data dependency, whether they taper or not or how soon will not merely be about the data.”

- Tom Porcelli, chief US economist at RBC Capital Markets

September is already here and for financial markets it usually means only one thing - high volatility. Despite looming confrontation in Syria, which in case of an open conflict will definitely have a negative impact on the world’s largest economy, the pivotal for investors will still be the possible tapering of Fed’s stimulus programme, which could be announced in the middle of the month. The third round of bond buying policy, also known as quantitative easing, is the U.S. governmental practice of injecting enormous amount of money in circulation through the purchase of financial assets. The Fed has been buying $85 billion of bonds and mortgage-backed securities per month since December 2012, and the tapering would mean an end of a 20-year U.S. bond market rally, as well as the end of extra liquidity injected into the U.S. economy that, moreover, has found its way into emerging markets as well. Historically, September was the worst month for the Dow Jones Industrial Average, which showed the worst performance during this month. In addition to that, September’s volatility will have an impact on the U.S. Treasury 10-year bond yield, which has already spiked by almost 50% during the usually quiet summer months. Finally, the impact of Fed’s tapering will be felt most in emerging markets, as outflows from emerging market equity funds more than doubled during the last week, reaching $3.9 billion, up from previous week’s $1.7 billion. September is known as a month with an abnormally high volatility, making it more riskier, and potentially more profitable for trade.

GBP

"The U.K.’s factories are booming again. Orders and output are growing at the fastest rates for almost 20 years, as rising demand from domestic customers is being accompanied by a return to growth of our largest trading partner, the euro zone.”

- Rob Dobson, senior economist at Markit

Another bunch of stronger-than-expected data from the U.K. came out on Monday, as manufacturing index climbed to its highest in 2 1/2 years, while new orders accelerated at the fastest pace in almost 20 years, boosting hopes the recovery is broadening and the economy will continue strengthening in the coming months. Britain’s factory index soared to 57.2 in August, from a revised 54.8 recorded in July, outpacing analysts’ estimates for a 55 reading. This level is the highest since February 2011. A report also showed the subindex for new orders leapt to 61.8 last month, from 58.6 in July, supported by strong domestic demand. As manufacturing sector accounts for almost one-tenth of domestic economy, these reports will be welcome news from BoE’s Governor Mark Carney, who pledged to keep interest rates at record-low until unemployment fall to 7%, which is expected to happened in late 2016. However, many investors are seeing jobless rate falling even faster.

The latest figures are suggesting the economy will pick up pace in the third quarter, after expanding 0.7% in the previous three months. The Bank of England is most likely to keep the pace of its bond-purchase programme on hold during its September’s policy meeting. In terms of the GDP outlook, most of the British economy watchers have so far upgraded their growth projections for the next two years.

AUD

"It shows how housing activity in general is really quite vulnerable at the moment. We had reason to believe over the last six or nine months there was a bit of recovery underway in building, but these figures would put a question mark over that again.”

- Shane Garrett, senior economist for the Housing Industry Association

Approvals for the construction of new houses rose sharply in July, the Australian Bureau of Statistics said Monday. Building approvals surged a seasonally adjusted 10.8% on month compared with analysts' forecasts of a 4.1% increase. It is a first monthly gain after two straight months of declines, while on a yearly basis building consents rocketed 28.3%. Local councils approved the construction of 14,304 new homes in July, with 8,309 houses built in private sector, while excluding houses private sector dwelling advanced 5,623. Earlier, the Housing Industry Association has reiterated its call for the central bank to lower the interest rate again by a further 25 basis points in an effort to bolster earlier signs of recovery.

As it was widely expected Australian policymakers cut its key-lending rate to 2.5% last month, as they tried to ignite growth in non-mining sectors of the economy. However, minutes from the RBA’s last meeting noted that several economic indicators are pointing to a further recovery in dwelling investment, adding to signs loan approvals will rose higher from the current level, which is already the highest in over three years. Australians are expecting no changes in monetary and fiscal policies after September, when opposition leader Tony Abbott is most likely to win the general election. Abbott is expected to instill a greater sense of direction for the Australian economy.

CHF

"The PMI and most of the sub-indices came in close to their average historical levels in August, which is a sign of a certain degree of normalisation”

- Swiss SVME purchasing managers' association and Credit Suisse

Activity at Swiss manufacturing sector expanded for a fifth consecutive month in August, albeit at a slower pace, due to a drop in production and stocks, suggesting a modest recovery is underway. A survey by Credit Suisse and procure.ch revealed on Monday a gauge of manufacturing activity fell to 54.6 last month, down from 57.4 a month earlier and below analysts’ expectations of a 55.9 figure. Still, the indicator is much higher than the 50 threshold, which indicates expansion of the sector. Meanwhile, production decelerated as the corresponding index tumbled to 53.2 in August, while the indicator for backlog of orders dropped to 59 compared with 61.6 in July. The only component which surprised market participants to the upside was the measure of purchasing prices, which moved into positive territory for a first time in nine months, recovering to 51.4 from July’s 47.

Resilient domestic demand was on the main pillars of the economy so far, however, its fortunes are closely tied to the Eurozone, which is only starting to recover. Hence shipments from the Alpine country fell in July as demand in Europe, Swiss largest trading partner, remained weak. Nevertheless, the survey’s authors are claiming the higher-than-average order backlog reflects a positive tendency in confidence, suggesting production should increase in the future.