Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The escalation of the situation in Iraq, Israel and Eastern Ukraine as well as the gradually accelerating spiral of sanctions in Russia have now also had a negative impact on the previously extremely optimistic economic outlook of Germans"

- GfK

Consumer sentiment in the largest economy of the Euro zone plunged in September of this year, as Germans became more concerned about possible negative impact from Russia’s sanctions. The respective indicator from the GfK Institute slowed down to 8.6 points after a revised 8.9 mark a month before. Meanwhile, the gauge still hovers around the highest point since the middle of the year 2007. Analysts hoped that domestic consumption in Germany would offset the decline of net exports. The economic growth in the country turned to be negative in the second quarter, as GDP lost 0.6% on the annual basis and 0.2% quarter-on-quarter, while net exports has always been on the strong side of the German economy. The confidence level is expected to deteriorate even more in the nearest future amid escalating political tensions between Ukraine and Russia. However, GfK experts underline that changes in global political landscape and the world economy had little impact on the EU’s biggest economy so far.

At the same time, Presidents of Russia, Ukraine, Belarus and Kazakhstan, together with EU representatives met yesterday in Minsk to discuss possible decisions in order to de-escalate the conflict in the Eastern Ukraine, which can potentially weigh on easing Russian economic sanctions on the EU and other regions, while most of these countries still extremely depend on trade with partners from the East.

USD

“There is no question we have made progress — businesses have added 9.9 million jobs over 53 straight months of job growth. But there is more we need to do."

- Chris Van Hollen, the top Democrat on the House Budget Committee

The Congressional Budget Office expects the U.S. economy to grow by just 1.5% in the whole 2014, impaired by a weak performance during the first three months of the year. The new economic forecast was considerably more gloomy than the Obama administration's, which predicted last month that the economy would grow by 2.6% this year even though it contracted by an annual rate of 2.1% in the first quarter. The world’s number one economy, however, did grow by 0.9% during the first half of 2014. Preliminary GDP data is scheduled for today, with economists forecasting a 3.9% growth. However, growth in the gross domestic product, the economy's total output of goods and services, bounced back in the second quarter, advancing at an annual rate of 4%, according to the government's first estimate.

Looking ahead, the CBO said it saw the economy expanding by 3.4% over 2015 and 2016, and predicted that the jobless rate would remain below 6% in the future. The CBO also projected that the government would face a deficit of $506 billion for the budget year that ends September 30. That would be the lowest level of Barack Obama's presidency. Obama inherited a recession and a trillion-dollar-plus deficit, when he took office in the aftermath of the 2008 fiscal crisis. The U.S. economy has recovered more slowly than expected; some of the recent decline in the unemployment rate is due to frustrated job-seekers leaving the labour market.

GBP

“Our conclusion is that the business case for independence has not been made.”

- 133 U.K. businesses

More than 130 businesses spoke out against Scotland’s independence, marking the biggest intervention by the U.K. business community into the referendum debate thus far. Business leaders have signed a letter, which says that the business case for Scottish independence “has not been made”. Moreover, in a statement heads of some of the U.K.’s leading companies said the outcome of the historic September 18 referendum would affect generations to come. The letter also says that “uncertainty surrounds a number of vital issues including currency, regulation, tax, pensions, EU membership and support for our exports around the world; and uncertainty is bad for business.” The signatories come from a variety of businesses such as banking, mining, engineering, food, whisky, and technology including Douglas Flint, the chairman of HSBC; Andrew Mackenzie, the chief executive of the mining company BHP Billiton; and Sir John Grant, executive vice-president of policy at the energy company, BG Group.

Voters will decide next month whether Scotland with a population of just over 5 million should halt its 307-year-old union with England and leave the United Kingdom. Britain's three main political parties want Scotland to stay in the union, which includes England, Wales and Northern Ireland.

JPY

“Still the economy will rebound in July-September after a sharp drop in the second quarter"

- Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute

While the Japanese economy has been faltering recently, inflation is stalling and economic outlook has dimmed further, analysts weigh whether the Bank of Japan will ease monetary policy this year or wait until 2015 to kick-start growth. Economists believe that the central bank will fail to reach the desired 2% inflation goal before April, and thus the BoJ will be forced to make the policy even more accommodative. The central bank cut its growth outlook for this fiscal year to 1.0% and expect the economy to expand at the 1.5% pace next year.

In the meantime, Vice Economy Minister Yasutoshi Nishimura calls for the government to be more cautious about a decision on lifting the national sales tax than it was on the previous hike as the economy reaches a "make-or-break point". Nishimura is concerned about the effect of the April 1 tax hike on consumption, which appeared to be prolonged, saying the government is ready to embark on fresh fiscal stimulus to support the economy. Prime Minister Shinzo Abe is to decide by the end of the year whether to proceed with a planned rise of the tax to 10% next year after raising it to 8% from 5% in an attempt to curb Japan's runaway government debt. Koichi Hamada, an adviser to Shinzo Abe, thinks that Japan could soften the effect of a planned sales tax increase by raising it gradually in stages rather than in a single hike.

AUD

"The key component that leads into gross domestic product was down almost 1 per cent in the quarter and spending plans for the fiscal year 2014-15 have been revised down”

- Su-Lin Ong, RBC Capital Markets head of economics

The Australian economy is gradually moving away from its dependence on mining investment, albeit slower than expected. According to the Australian Bureau of Statistics, business investment increased 1.1% to $37.6 billion in the second quarter, mostly driven by services companies, overshooting economists’ expectations for a 0.9% decline. The rise also showed a solid recovery from an upwardly revised drop of 2.5% in the three months through March, it was originally reported as a 4.2% slide. The rise was driven by a 2% increase in spending on buildings and structures to $25.3 billion, mostly led by the services sector, as mining investment continues to fade. All-important investment in equipment, plant and machinery fell as much as 0.9% quarter-on-quarter, to $12.4 billion, and 10.1% on an annual basis. This figure is the only component of capital expenditure that contributes directly into second-quarter GDP data. The final estimate for capex over the 2013-2014 financial year is $157.9 billion, down 1.7% compared to the level spent in 2012-2013. During the 2014-15 financial year, businesses expect to invest $145.16 billion, which is 10.2% lower than the corresponding figure made at the same time last year.

In the meantime, the Reserve Bank of Australia has warned against new policies that may encourage increased supply of mortgage finance in Australia, noting they could have implications for systemic risk.