Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“German business confidence confirmed the decent rebound of the economy in the final quarter of the year”

- Carsten Brzeski, economist at ING

Business morale among German top executives improved in December, reinforcing the view that Europe's number one economy is on course to pick up in the final quarter of the year after narrowly avoiding a recession in the three months through September. The German Ifo Business Climate Index, which is based on a survey of manufacturers, builders, wholesalers and retailers, rose to 105.5 in the reported month, compared with an expected 105.5 reading. Meanwhile, the Current Assessment sub-survey, assessing current conditions in the Euro area's biggest economy, booked 110 points, same as the previous month's figure of 110 and below estimates of 110.4 points. Moreover, the Ifo Expectations Index, indicating firms' projections for the next six months, came in at 101.1, up from 99.8 in November.

The recently released Ifo survey echoes the signs of renewed sanguine mood seen in the recent ZEW index, which measures investor sentiment in Germany. According to the ZEW index released earlier this week, German investor optimism improved further in December, hitting the highest level since May 2014. On top of that, preliminary PMI data for the manufacturing and services sectors came in mixed, with the German manufacturing sector returning to expansion, while the services sector showed a deteriorating trend in December.

USD

“Labor market conditions improved further, with solid job gains and a lower unemployment rate”

- Federal Reserve

The number of Americans seeking first-time unemployment benefits declined last week and remained near the lowest level in 14 years, the latest sign of strengthening labour market. Jobless claims fell by 6,000 to 289,000 in the week ended December 13, the fewest since early November, a Labor Department report showed. New applications for unemployment benefits have stayed below the 300,000 threshold in 13 of the past 14 weeks, the longest such streak since the first half of 2000. The four-week moving average, which irons out volatile weekly data, declined by 750 to 298,750. Meanwhile, companies continue to hire more workers and job creation is set for the best year since 1999. The American economy added a seasonally adjusted 321,000 new jobs in November, a separate report showed earlier this month, while the jobless rate was at 5.8%. The Fed officials now expect the jobless rate will decline to 5.2% or 5.3% in 2015, putting the unemployment rate in a zone policy makers consider "full employment”.

In the meantime, the US services sector activity slowed in December, as the preliminary PMI gauge for the services industry dropped to 53.6 down from the final 56.2 a month earlier. That was the lowest reading since February, extending the drop seen since the index climbed to a cyclical peak in the low-60s in June. The sub-component measuring price growth declined to the weakest level since March last year.

GBP

“These numbers verify the shift in spending patterns happening in the final quarter of the year. Black Friday led to unprecedented demand”

- Natalie Berg from Planet Retail

Britain’s retail sales surged above estimates on month in November, while year-on-year sales rose at the fastest pace in 10 years as US-style Black Friday bolstered sales of electrical appliances and household goods. Volumes sold by UK retailers soared at an annual 6.4% pace, according to the Office for National Statistics, the biggest increase since May 2004, marking 20 straight months of growth. Compared with October, sales rose 1.6% in November. Economists had forecasted retail sales to edge up 0.3% on month following a similar increase in November, and for sales to be 4.4% higher on year. US-style discounts for Black Friday took off in Britain this year, with stores experiencing record sales. Electrical goods sales skyrocketed 32% from the previous year, while sales at department stores rose 15%, both of which were the biggest rise since records began in 1988. The value of sales made online jumped 12.9% compared with a year earlier. Consumer spending was also supported by plunging oil prices and weak inflation. Official data earlier in the week showed that annual consumer price inflation slid to the lowest level in 12 years of 1% in November, while annual wage growth in October picked up to 1.8% from 1.5% in September. The Bank of England continues to expect consumer spending to be a growth engine, after fuelling what looks set this year to be the fastest growth pace in overall economic output in more than a decade.

CHF

“The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate.”

- Swiss National Bank

The Swiss National Bank slashed deposit rate, sending it to the negative territory, to limit inflows from investors seeking a safe haven place to park their cash. Policy makers in the Alpine nation imposed a charge of 0.25% on sight deposits, the cash-like holdings of commercial banks at the Swiss central bank. The SNB thus expanded the target range for the three-month Libor to -0.75%-0.25% and extended it to its usual width of 1 percentage point. The SNB reiterated its commitment to the minimum exchange rate of 1.20 francs per Euro, underlying that it would defend the cap the “utmost determination” and implement further measures if needed. Given the fact the results of the second round of TLTRO failed to bring relief to the ECB policy makers, further loosening is a matter of time, which may challenge the SNB’s task to defend the lid.

Meanwhile, the SNB downgraded its GDP outlook amid the economic slowdown in the Euro zone. Swiss economic output is set to grow 1.8% this year, according to the State Secretariat for Economic Affairs, unchanged from the October projections. In 2015 the country's GDP will rise 2.1%, compared with its earlier expectations of 2.4%. As for consumer price inflation, it is seen to record no growth in 2014, while next year it should grow at a rate of 0.2%, down from the earlier projections of a 0.4% increase.

NZD

“The pace of expansion looking forward should leave the RBNZ on a tightening bias, and that’s where they are. There’s nothing in the data to suggest the RBNZ needs to be any more aggressive with its interest-rate track.”

- Stephen Toplis, head of research at Bank of New Zealand Ltd.

New Zealand’s economy expanded at a faster than expected pace in the third quarter as low interest rates and record immigration boosted consumption, while primary-industry production rose to a 15-year high. Gross domestic product rose 1% in the July-September period, up from the 0.7% growth in the preceding quarter, according to Statistics New Zealand. Analysts, however, had expected a slightly weaker growth of 0.7%, whereas the Reserve Bank of New Zealand had forecasted a 0.9% increase in economic output. Measured on an annual basis, the South Pacific nation’s economy expanded 3.2%. Primary-industry activity soared 5.8% over the three months through September, driven by agriculture and mining production which rose 4.7% and 8% respectively over the third quarter. Manufacturing also contributed to the solid growth, growing 2% over the quarter. The service industries, however, were mixed with increases in telecommunications and retail being offset by declines in transport and business services. Last week the RBNZ decided to keep rates unchanged and pared its outlook for future rate increases, saying that the growth could be sustained with a more gradual lift in interest rates, due to soft inflation pressure. The central bank indicated that it intends to raise the Official Cash Rate three more times over the next two years by 25 basis points in each case. The RBNZ has already hiked the OCR by 1 percentage point since March.