Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The final PMI reading signalled slightly stronger growth of the manufacturing economy than the preliminary reading, adding further to signs that the eurozone economy is reviving after last year’s slowdown”

- Chris Williamson, chief economist at Markit

The Euro zone’s manufacturing activity rose more than initially estimated and at the fastest pace in 10 months, while new orders from overseas buyers rose on the back of a weaker Euro. The final manufacturing PMI climbed further to 52.2 points in March, up from preliminary 51.9 points. While a weaker currency is beneficial for companies, it also raises costs for manufacturers by lifting import prices. Nevertheless, businesses continued to reduce prices they charge, adding to challenges the ECB faces on the way to raise the Euro bloc’s inflation back to the official target of just below 2%.

In the Euro zone’s powerhouse, Germany, final data showed that the manufacturing continued to grow in March, with the corresponding index coming in at 52.8, the highest level in 11 months. Nevertheless, March’s manufacturing data from France signalled an ongoing contraction in the sector, even though the final reading was better than preliminary results. France’s final manufacturing PMI came in at 48.8 in the reported month. The Euro zone’s third biggest economy, Italy, reported a further improvement in manufacturing sector in March, with the corresponding PMI indicator edging up to 53.3, the highest level since April 2014. Activity in Spain's manufacturing sector continued to grow in March, indicating a solid strengthening of business conditions. The PMI for Spain reached 54.3 in March.

USD

“[…] lower oil prices having both positive and negative impacts depending upon the industry, residual effects of the harsh winter, higher costs of healthcare premiums, and challenges associated with the stronger dollar on international business”

-Bradley Holcomb, chair of ISM's manufacturing survey committee

The ADP report on the US labour market surprised to the downside, as fewer jobs were added in March than predicted. ADP non-farm employment change increased by 189,000 in March, considerably below expectations of a 225,000 rise. However, last month’s data was revised upward to 214,000 from 212,000. The ADP employment change is considered as one of the leading indicators of labour market strength in the world’s biggest economy. Even though the data appeared to be worse than expected, the jobless rate is set to remain unchanged at 5.5%, the lowest level since 2008. Last month the US unemployment rate fell to the level that some Fed officials consider consistent with full employment.

Another piece of soft data came from the US manufacturing sector, where activity expanded at a slower pace in March, the Institute for Supply Management reported. The ISM manufacturing index dropped to 51.5 last month, compared with 52.9 in February, while expectations were for the report to show the gauge to fall to 52.5. This was the fifth consecutive decline in the index, yet the reading remained above the 50-mark threshold, indicating the manufacturing sector continued to expand instead of shrinking. The employment sub-index dropped 1.4 points to 50, while the ISM’s new-orders gauge slipped to 51.8 from 52.5.

GBP

“The sector’s recovery is picking up pace”

-Vicky Redwood, chief U.K. economist at Capital Economics

British manufacturing activity rose at the fastest rate in eight months in March, signalling the UK economy has been keeping its momentum. Markit research group said the UK manufacturing PMI climbed to a seasonally adjusted 54.4 in the reported month, compared with 54.1 in February and overshooting economists’ expectations for an increase to 54.3 points. The index remained above the important 50-point threshold, i.e. in the expansion territory, for the 24th straight month. Growth of production and new orders accelerated, whereas production costs continued to decline. The report also showed exports improved in March as demand from overseas rise modestly. The average rate of job creation in the manufacturing sector has reached 5,000 a month. The data came a day after a report showed the UK economy grew more than initially estimated in the fourth quarter as consumers and exporters ensured Britain’s longest streak of uninterrupted expansion since 2008.

Even though the UK economy is gathering steam, the Bank of England has said it will keep the benchmark interest rate at a record low as it monitors the implications of the decline in the inflation rate to zero. Markit added that in March, there was a “substantial decline” in factory input prices, driven by cheaper oil and a stronger Sterling.

AUD

“The latest trade figures are certainly disappointing but not unexpected”

- Savanth Sebastian, economist at Commsec

The number of new homes approved for construction in Australia fell in February, but still remained near record levels. According to the Australian Bureau of Statistics, 18,768 dwellings were approved in the reported month, recording a 3.2% decrease from the record high in January. However, measured on an annual basis, building approvals were more than 14% higher than in February 2014, beating expectations for an advance of 10.7% following the 9.1% increase in the previous month. Approvals for private sector houses declined 0.1% on month and 1.0% on year to 9,441. Private sector approvals excluding houses tumbled 6.0% on month but soared 36.2% on year to 9,102.

Meanwhile, a separate report showed Australia’s trade deficit ballooned to its highest level in five months due to declining iron ore prices and the weaker Australian Dollar. The trade gap widened to a seasonally adjusted $1.26 billion in February, compared with an upwardly revised $1.00 billion in the preceding month. Exports inched higher by 1% to $27.9 billion in the month, while imports rose by 2% to $29.1 billion, the Australian Bureau of Statistics said. At the same time, consumer price inflation in the country climbed at the fastest pace in almost a year. The TD Securities-Melbourne Institute Australian Inflation Gauge ticked up by 0.4% in March after remaining flat a month earlier.

CNY

“For all companies, profit growth has declined. The slowing trend is clear. It’s a more difficult environment, with orders slowing and a lower order book.”

- Shen Jianguang, economist at Mizuho

China’s manufacturing activity rebounded in March for the first time since December, indicating that Beijing’s measures to underpin the world’s second biggest economy are having an effect. The official manufacturing PMI, released by the National Bureau of Statistics, rose to 50.1 in the reported month, up from 49.9 in February. On the index, a figure above the crucial 50-mark threshold signals expansion of activity in factories and workshops, while anything below indicates contraction. Sub-indexes measuring new orders and new export orders both declined in March from February levels, whereas the production sub-index improved. However, according to the HSBC, China’s manufacturing PMI dropped to a final reading of 49.6 in March from 50.7 a month earlier. The final reading appeared to be higher than the preliminary March PMI of 49.2, released March 24. The preliminary data is based on 85% to 90% of responses to the PMI survey.

China set an annual growth goal in March of about 7%, compared with the actual growth of 7.4% in 2014, the slowest in nearly a quarter century. With momentum slipping and companies facing mounting debt, China’s government has in recent months cut interest rate twice and reduced bank-reserve requirements. On Monday, Beijing reduced down payment requirements for home buyers in a an attempt to support the property market.