Fundamental Analysis
EUR
“The deteriorating trend in the surveys will add to pressure for the ECB to do more to boost the economy without waiting to gauge the effectiveness of previously-announced initiatives”
- Chris Williamson, chief economist at Markit
Activity in both manufacturing and services sectors of the Euro zone slowed in November, adding to concerns the Euro bloc’s economy risks a renewed slowdown. Markit’s Composite flash PMI reading dropped to 51.4, the lowest level in 16 months, down from 52.1 a month earlier. The manufacturing PMI gauge edged down to 50.4, but remained in the “green” territory for 17 consecutive months, while services PMI worsened to 51.3 from 52.3 recorded a month ago. While massive stimulus by the ECB will begin to take effect in coming months, sluggish growth in the top European economies Germany and France as well as increasing tensions in Ukraine jeopardize the Euro area’s modest revival. The data compiler Markit said that PMI indicated a 0.1%-0.2% GDP growth in the fourth quarter. In Germany, manufacturing and services expanded at the slowest pace in 16 months, signalling that growth in Europe’s powerhouse is poised to remain sluggish. German manufacturing PMI came out at 50.0, substantially below analysts’ forecast for a 51.5 reading, while services PMI fell to 52.1 from a downwardly revised 54.4. French manufacturing continued shrinking as demand fell, casting doubt on the strength of the French economic rebound seen in the third quarter. French manufacturing index dropped to 47.6, the lowest level in three months. The services sector index climbed to 48.8, slightly better than expectations for 48.5, but still below the 50-point line denoting growth.
USD
“Core inflation, which is our best measure of future headline inflation, is showing signs of bottoming out here”
- Eric Green, head of U.S. rates and economic research at TD Securities
The number of Americans seeking new claims for jobless benefits dropped less than expected last week, but continued to point to improving labour market conditions. The Labor Department reported that initial claims for state unemployment benefits slid 2,000 to a seasonally adjusted 291,000 for the week ended November 15. The previous week's data was revised to show 3,000 more applications received than initially recorded. The four-week moving average of claims, considered a better gauge of labour market trends as it strips out week-to-week volatility, rose 1,750 to 287,500, remaining at levels consistent with strong employment growth. A separate report showed that US consumer prices were flat last month, but there is evidence that underlying inflation pressures begin to push higher. The Labor Department said falling gasoline prices, which offset increasing shelter and medical costs, had weighed on the Consumer Price Index last month. The CPI increased 1.7% in the 12 months through October, advanced by the same margin for a third consecutive month. Core CPI, which strips out volatile food and energy prices, rose 0.2% last month after climbing 0.1% in September. In the 12 months through October, the core CPI rose 1.8% after rising 1.7% in September. Price growth in the country has slowed somewhat in recent months after accelerating in the second quarter, in part as a strengthening Dollar and economic slowdown in China and Europe sap imported price pressures.
GBP
“Cheaper food and petrol prices are a boon for consumers that should help keep their confidence healthy and return some of the sparkle to U.K. growth next year”
- Rob Wood, an economist at Berenberg Bank
Britain’s retail sales, which account for 5.6% of total UK GDP, rose at the fastest clip in six month in October, driven by sales of household goods and spending on food. Total retail sales including auto fuel soared 0.8% from September, when they dropped 0.4%, which was the weakest performance since January, according to the Office for National Statistics. On an annual basis, total sales surged 4.3% in October compared with the same month a year ago. The jump in the quantity bought by consumers was driven by a large decline in prices, the ONS reported. Average store prices fell 1.5% in October from the previous year, led by petrol stations, following the sharp oil price decline this year. Household goods retailers and department stores were some of the largest contributors to the rise in volumes. Also, clothing stores returned to growth in October, after warmer-than-expected weather in September made consumers put off their purchase of winter clothes.
Consumer spending has driven Britain's strong economic recovery which began in mid-2013 and is likely to remain its main engine as demand for exports remains subdued due to the slowdown in the continental Europe. A sustained pickup in wages would allow consumers to keep supporting the economy without increasing the amount of debt taken up by Britons. The Bank of England underscored that consumption has been supported by a drop in savings.
NZD
“The recent fall in global dairy commodity prices, strong global production, a build-up of inventory in China, and falling demand in some emerging markets all influenced this fall”
- Statistics New Zealand
Producer input prices in New Zealand dropped in the third quarter as falling farm gate milk prices cut input costs for dairy manufacturers, reinforcing the view inflation in the South Pacific country will remain subdued. Input prices decreased 1.5% in the July-September quarter, following the 1% decline in the preceding three-month period, while output prices slid 1.1%, Statistics New Zealand said. On an annual basis, inputs climbed 2.2% and outputs rose 2.4%. Prices fetched by dairy-cattle farmers plummeted 28% over the quarter, contributing the most to the quarterly decline in total output prices, while the input prices for dairy product manufacturing tumbled 23%, the biggest drop since the third quarter of 2002.
Other commodity-based industries have also been hit by a recent decline in global prices, including logging and forestry, of which output prices fell 10% in the September quarter. Statistics New Zealand said weaker international and domestic demand and a build up of logs in China affected the prices decline. Wholesale-price deflation is generally reflected in consumer prices, indicating that inflation in the country will remain contained for some time. Statistics New Zealand reported last month that the Consumer Price Index rose 1.0% year-on-year in the third quarter, which is at the bottom of the RBNZ’s 1-3% medium-term target band.
JPY
“The weaker yen’s boost to car shipments and a recovery in Asia is driving a pickup in Japan’s exports”
- Minoru Nogimori, an economist at Nomura Securities Co
Japan’s exports grew robustly in October, rising the most in eight months, adding to optimism that global demand could help the world’s third-biggest economy recover from recession and support the Bank of Japan’s upbeat economic outlook. Overseas shipments surged 9.6% from the previous year to the highest level since October 2008, overshooting economists expectations for a 4.5% gain. It is expected that the weaker Yen may support shipments further. The Japanese Yen has fallen significantly over the last two years, largely due to unprecedented monetary stimulus from the Bank of Japan. This week the currency hit fresh multi-year lows, after data on Monday showed the economy shrank for the second-straight quarter in the third quarter, putting Japan in a technical recession. According to the flash data, Japan's GDP shrank 0.4% in the June-September quarter, signalling that the economy has not yet recovered from a sales-tax hike in April which crippled demand. Imports, meanwhile, rose 2.7%. As a result Japan’s trade deficit narrowed to 710 billion yen in October from 958.3 billion a month earlier, according to the Ministry of Finance. In another sign that the Japanese economy is regaining its footing, a private flash survey revealed that factory output rose in November at the fastest pace since March. The output component of the manufacturing PMI index, which fell to 52.1 in November from 52.4 a month earlier, rose to a preliminary 53.5 from 51.3 in October, hitting an eight-month high.
This overview can be used only for informational purposes. Dukascopy SA is not responsible for any losses arising from any investment based on any recommendation, forecast or other information herein contained.
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