Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“We must invest more and improve our competitiveness. We must get to work on this -- quickly and in a concrete way"

- Wolfgang Schaeuble, German Finance Minister

The streak of negative news from Germany continues to disappoint markets and European officials. Monday data from Destatis showed producer prices in the Euro zone’s number one economy booked another month of decline in September. The headline annual PPI slid 1% following the previous month’s drop of 0.8%, while on a monthly basis, PPI was 0.0% in the reported month compared to the 0.1% decline in the previous month. In order to prop up growth in the Euro area’s flagman, and improve its competitiveness, German Finance Minister Wolfgang Schaeuble said that he plans to increase investment spending, but at the same time he will continue striving to achieve a balanced budget next year for the first time since 1969. Affected by the geopolitical crisis abroad, an ailing Euro zone and feeble domestic demand, Germany has cut its growth forecasts to 1.2% in 2014 and 1.3% in 2015 from 1.8% and 2.0%, respectively. Meanwhile, French Finance Minister Michel Sapin said France would cut the deficit at a rate, which ensures a fragile recovery is maintained, while Economy Minister Emmanuel Macron is sure the European Commission will not decline Paris’s budget for 2015, despite the fact that it breaks EU deficit limits. France admitted earlier this month it would not be able to bring its deficit within the Euro zone's 3% of national GDP limit until 2017, four years later than promised. The ECB has started to buy short-term French covered bonds to boost economy and inflation.

USD

“There has been substantial improvement in labour markets. As a result I would be pretty comfortable [ending purchases] at the end of the month.”

- Eric Rosengren, President of Boston Fed

The Federal Reserve has to stick to its current policy stimulus especially in light of the recent volatility in financial markets, said Boston Fed President Eric Rosengren, stressing that a scenario in which the central bank holds rates at record low until 2016 is viable. Meanwhile, Dallas Fed President Richard Fischer believed that the Fed should end its bond-buying programme as planned at the end of the current month despite the recent market volatility. The Fed is set to wind down its bond-buying stimulus at its meeting next week, but also said it will keep interest rates near zero for a "considerable time" after the end of bond-buying. The Fed is still likely to start raising interest rates in mid-2015, although it now seems a little less likely that the central bank would act sooner, and there are more chances it would wait longer amid concerns about persistently low inflation. Fed officials meet on 28-29 October to decide whether to withdraw its bond-buying programme as planned, and what language to use to communicate when they will raise borrowing costs. Some Fed officials are concerned that the Fed risks waiting for too long before beginning to hike interest rates. Recently Loretta J. Mester, President of the Federal Reserve Bank of Cleveland, pointed to research that revealed jobless rate had “almost” returned to a normal level, based on an analysis of five measures of labour market slack.

GBP

“It’s starting to look like quite a sound move to have refrained from a rate hike and resisted the firing calls back in the summer”

- Peter Dixon, economist at Commerzbank AG

House prices in London rose the most in more than a year in October as a seasonal increase in demand drove a rebound in the capital’s property market. Values rose 7% from September to a record average 596,692 pounds, the biggest leap since October 2013, Rightmove said. Surging home prices in the capital have forced buyers to seek property outside London, resulting in a 10% annual increase in asking prices in the South-East, compared with an advance of 9.6% in the capital. Average asking price in the South-East currently stands at 355.874 pounds. Across the country, the property price going on sale in October rose by 2.6% compared with September, with average price increasing by 7,000 pounds to 271,669. Despite the bullish long-run outlook from Rightmove, it admitted that overall house price inflation was slowing. The 2.6% national monthly asking price rise in October is the lowest rise in six years. While data this week reveals a fifth quarter of uninterrupted growth since Bank of England Governor Mark Carney stepped in, economists see the pace slowing, while drivers acting against rate hike are mounting. This means the central bank’s nine-member MPC will continue to vote to keep monetary policy unchanged and key interest rate at a historic-low of 0.5%. The softening outlook urged investors to push back bets for the first rate lift to September 2015, from May at the time of the BoE’s September meeting.

CAD

“So, that growth, which is starting to look like it can be sustained, is very positive”

-Joe Oliver, Canada’s Finance Minister

Canada’s wholesale sales unexpectedly increased in August, coming in at the second-highest amid gains in machinery, wood as well as metal products. Sales inched higher 0.2% from July to a seasonally adjusted C$53.1 billion, according to Statistics Canada, beating forecasts for a 0.3% drop. Machinery, equipment and supply sales increased 3.6% to a record C$11.3 billion, led by a surge in computer and communications equipment. The miscellaneous subsector also contributed to better sales. In contrast, autos and parts subsector fell 3.7%, erasing most of July's gains. Meanwhile, wholesale inventories rose for an eighth consecutive month in August, posting a 0.2% gain, reaching a record $66.8 billion, led by machinery, equipment and supplies subsector.

The better-than-expected wholesale data come on heels of last week's disappointing factory shipments report, which triggered concern around August's GDP growth. The data revealed that manufacturing sales dropped the most in over five years in August, down 3.3% to $52.1 billion, reversing last month's record increase, with major losses in the transportation equipment industry. In addition, Canada recorded the largest trade deficit in nine months in August, as imports rose 3.9%, whereas exports declined 2.5%, resulting in a $610 million trade gap.

NZD

“The waning in consumer sentiment is not consistent at all with the notion that the wheels are starting to fall of this economy”

-Cameron Bagrie, chief economist at ANZ

Consumer confidence in New Zealand declined to the lowest level in 12 months as households feel less upbeat about the economic outlook, particularly over the next five years. The ANZ-Roy Morgan consumer confidence index dropped 4.3 points to 123.4 this month, but the gauge remained above its long-run average of 118.8. The current conditions inched up 0.3 of a point to 124.4, whereas future conditions fell 7.4 points to 122.8. The decline follows the Reserve Bank of New Zealand decision to pause its interest rate hiking cycle to assess the effect of its four increases so far this year and as the growth pace is set to slow somewhat from a peak in the first half of the year. Positively though, most consumers still felt better off financially than they did a year ago, and were more inclined to buy a major appliances this month. Some 77% of people surveyed anticipate interest rates to increase over the coming two years, at an annual pace of 3.7%, and 70% expect house prices to rise an annual 4.1% over the coming two years.

The New Zealand Dollar strengthened versus the Japanese Yen as upbeat US economic data supported sentiment on global growth, encouraging investors to cut holdings of safe haven currencies such as the Yen.