Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“The pace of expansion in the Euro zone has been range-bound since the uplift following the start of QE earlier in the year, remaining disappointingly modest and even slipping to a five-month low in September.”

- Markit

Manufacturing in the 19-nation Euro zone continued to be in expansion territory in September, but growth slowed from previous months, adding to worries about the ability of the sector to generate more jobs and higher inflation. According to Markit survey, the final PMI measure for the Euro zone posted a 52 points in the reported month, slightly below August’s reading of 52.3. The final gauge was in line with market expectations. The recent industry reports from the Euroland shows that despite unprecedented ECB stimulus and substantial currency depreciation, the manufacturing sector is failing to achieve significant growth momentum.

As for manufacturing sectors in the Euro area’s biggest economies, all countries but France saw its pace of growth decelerating in September. The latest PMI for Germany fell to 52.3, down from August’s reading of 53.3 points, while factory activity gauge in Italy declined to 52.7 points in September from the 53.8 points booked in the preceding month. Meanwhile, the PMI for the Spanish manufacturing sector dropped to 51.7, a 21-month low, slipping from last month’s 53.2 points. Unlike these countries, the final manufacturing PMI in France improved in September, as the gauge advanced to 50.6 points, up from last month’s figure of 48.3.

USD

“The manufacturing sector is slowing towards contraction and the primary cause is a drop in global demand.”

- Investment Technology Group

The number of Americans who applied for the US unemployment benefits rose by 10K to 277K in the week ended September 26, but initial claims remain extremely low in a sign of steady improvement of the labour market. The figure missed market expectations, as it anticipated the reading of total 273K claims. Overall, jobless claims in the US are hovering near historically low levels despite headwinds from slowing emerging economies, as employers retain staff amid solid domestic demand. Meanwhile, in annual terms the number of people continuing to receive jobless benefits dropped by 53,000 to 2.19 million.

Meanwhile, activity in the manufacturing sector of the world’s biggest economy slumped to its lowest level since May 2013 and is approaching a contraction territory. The PMI indicator released by the Institute for Supply Management slid for a fourth consecutive month to reach 50.2 points in September, down from 51.1 in August. Analysts estimated a downward change to 50.6 points only. Among factors weighing on activity in the industry, analysts mention strong US Dollar, fears over slowdown in China and turbulent equity markets, while falling oil prices dragged lower growth in extraction sector.

GBP

“The rate of economic expansion dipped slightly in the three months to September following a near record-breaking previous month, but growth is still strong.”

- Confederation of British Industries (CBI)

The British seasonally adjusted Purchasing Managers’ Index, which is set to measure business activity in the country’s manufacturing sector, dropped slightly to a three-month low of 51.5 at the end of the third quarter. The final gauge was slightly above market forecasts of 51.3 points and below last month’s 51.6 points. This implies that the sector has been growing, as any reading above the threshold of 50 points demonstrates an increase in manufacturing activity.

In the meantime, manufacturing output in the UK grew at the fastest rate in half a year in September, however, still well below the numbers recorded in the opening quarter. Simultaneously, growth in new orders fell to the weakest pace in a year. As a result of all that, enterprises reduced the number of their employees for the first time in two and a half years. With respect to input prices, they continued to decline in September amid lower raw materials prices and particularly crude oil and oil-related costs. Selling prices also tumbled for the first time in three months in September.

CHF

“The downturn of Swiss industry is thus continuing, and the price and margin pressure in particular appear to be too great.”

- Credit Suisse

Swiss manufacturing activity decreased in September, just after its recent recovery in August, while retail sales in the Alpine economy dropped unexpectedly in August. The country’s Purchasing Managers’ Index dropped by 2.7 to seasonally-adjusted 49.5 points down from August’s reading of 52.2. The figure was below the expected 51.8 points and also below the 50-points threshold, meaning that the sector is experiencing a contraction where it has been for most of 2015. At the same time, the output gauge plummeted to 49.1 points in September, down from 62.4 points in the prior month. As to the Purchase Price Index, it slid to 35.1 points in September down from August’s 36.1 points.

The existing pressure on the Swiss manufacturing sector is likely to persist, as the appreciating Franc puts more pressure on manufacturer’s profitability, thus forcing companies to raise prices and cut costs, in order to mitigate losses. Meanwhile, the country’s retail sales surprisingly slipped in August by 0.3% on an annual basis. This figure did not match analysts’ forecasts, as they projected an increase of 0.3% after July’s 0.1% growth.

CNY

“The industry has reached a crucial stage in its structural transformation. Tepid demand is a main factor behind the oversupply of manufacturing and why it has not recovered.”

- Caixin-Markit survey

Activity in China’s all-important manufacturing sector continued to shrink during September, but at a slightly softer pace, as was revealed by two separate industry reports. The government’s official gauge of factory activity improved, with the manufacturing index rising to 49.8 points in the reported month, up from August's three-year low of 49.7. Nevertheless, PMI measure stayed below the 50 level, marking two straight months of decline. At the same time, markets expected the index to remain at 49.7 in September. The second contraction in a row in the manufacturing sector is prompting fresh calls for China’s government to add more stimulus, as the economy continues to display signs of weakness.

In the meantime, a private survey by Caixin revealed that their industry index fell to a fresh six-and-a-half year low of 47.2 in September, ticking down from reading of 47.3 in the prior month. However, the final reading improved slightly, compared with an earlier flash estimate of 47. Unlike the government's gauge, which concentrates on large firms, Caixin's survey focuses on smaller and medium-sized companies. Meanwhile, a decline in manufacturing activity in China comes amid a broader economic slowdown, led by downturn in the property market.

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