Fundamental Analysis

EUR

“Despite the small increase in non-seasonally adjusted terms, this labor market report is impressive.”

- Caresten Brzesk, chief economist at ING Diba AG

The Spanish economy accelerated for the eighth consecutive quarter, after it recovered from the recession in the third quarter of 2013. Spain’s GDP in the second quarter rose at 1.0% quarter-over-quarter, in line with economist forecasts. On an annual basis, GDP advanced 3.1%, below analysts’ expectation of 3.2%. Positive preliminary figure indicated that the economy has been sustaining its growth momentum seen in the beginning of the year, when GDP expanded 0.9%. Earlier in July, Spain’s central bank revised its 2015 GDP forecast to 3.3%, while for 2016 to 3%. Despite the strong growth, several economists believe that this highly indebted economy might have peaked its growth rate, as household consumption is difficult to sustain over long period of time. Moreover, July flash CPI was flat at 0.0%, down from 0.1% in June. Sliding fuel prices increase disposable income, therefore boosting household consumption and helping Spain’s economic recovery. In the meantime, Germany’s unemployed data revealed that the number of unemployed rose by 9,000 in July to 2.8 million, the biggest monthly increase since March of 2014. However, the unemployment rate stayed in line with analysts’ expectation at 6.4%, the lowest level since 1990. It was the first time in nine months when the number of unemployed surged in Europe’s largest economy, as there were fewer jobs available. The rise in unemployment could be attributed to young people looking for jobs after finishing their study or training programs.

USD

“The advance estimate of second quarter GDP confirmed what was broadly expected: the economy bounced back after stumbling out of the gate to start the year”

- Jim Baird, chief investment officer for Plante Moran Financial Advisors

US economic growth accelerated in the April-June quarter as an increase in consumer spending offset the drag from weak business spending on equipment. The US GDP rose a 2.3% annual rate, according to the Commerce Department, while the first-quarter economic output was revised to show a growth of 0.6%, up from a negative 0.2%. The revision to first-quarter growth reflected steps taken by the government to refine the seasonal adjustment for some components of GDP, which economists said left residual seasonality in the data, as well as new source data. Growth in the second quarter was boosted by consumer spending, which grew at a 2.9% rate from a downwardly revised 1.8% pace in the first quarter. Earlier this week the Fed described the economy as growing "moderately", while revising its view of the labour market upwards and saying housing had shown "additional" improvement. The Fed's assessment left the door open for a possible interest rate hike in September, which would be the first rise since 2006.

Meanwhile, the number of US workers applying for jobless benefits last week increased from a four-decade low, but the broader trend indicates the labour market is strengthening. Initial jobless claims rose by 12,000 to a seasonally adjusted 267,000 in the week ended July 25, the Labor Department said. The four-week moving average of claims, which smooths week-to-week volatility, declined 3,750 to 274,750 last week.

JPY

“There's a risk the recent softness in exports and output may hurt corporate sentiment just when companies were beginning to turn more aggressive on investment”

- Koji Ishida, BoJ board member

Japan’s household spending unexpectedly declined and inflation stalled last month, adding to signs the world’s third biggest economy may have contracted in the second quarter and questioning the Bank of Japan’s view that the growth will recover robustly in the current quarter. Annual core consumer inflation, which includes oil products but excludes volatile fresh food prices, climbed 0.1% in June, slightly beating market expectations of a flat reading. However, core consumer prices in Tokyo, a leading indicator of nationwide inflation, slid 0.1% this month, marking the first annual drop since April 2013.

At the same time, household spending dropped 2.0% in the year to June, after surging 4.8% in the prior month. While the government said rainy weather was the main reason behind reluctance of shoppers to open their wallets, weak demand for cars and housing pointed the increasing cost of living is sapping appetite for big-ticket items. The weak spending data, used for GDP calculations, reinforced views the Japanese economy probably contracted in the second quarter. It also questioned the BoJ's rosy scenario claiming that a tightening job market will underpin wages and boost consumption, helping achieve its price target by around September next year.

NZD

“Last month's sombre read on business confidence has been succeeded by more solemn results”

- Cameron Bagrie, ANZ Bank chief economist

Morale among New Zealand businesses unexpectedly dropped to the lowest level in six years in July, with agriculture being the most downbeat sector. The July release of ANZ Business Outlook revealed that a net 15% of firms were pessimistic about the general economy over the year ahead, compared with a net 2.3% in the prior month. A net 19% of those surveyed expected their own businesses to grow over the course of next 12 months, down from 2.6% in June. Confidence was weakest among farmers and the agriculture sector as a whole, with a net 45.4% pessimistic, with negative readings for profits, employment and investment intentions. Confidence in the agriculture sector has been severely undermined by the sharp decline in dairy prices. Whole-milk powder prices have plunged 63% since February 2014, hitting the agriculture-dependent country hard. The RBNZ flagged the dairy sector as a major risk to financial stability. Meanwhile, firms in the construction sector grew sharply more downbeat, with a net 28.6% pessimistic. The services sector and retailers both turned pessimistic this month, at -4.8% and -19% respectively. Some 15.5% of manufacturers were dispirited.

The survey comes after this week's comments by Reserve Bank of New Zealand Governor Graeme Wheeler, when he said further cuts to interest rates were likely this year.

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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