Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“Data from the German states, pointing to unchanged inflation at just 0.8 percent in September, will do nothing to ease the pressure on the ECB as it meets this week.”

- Capital Economics

Consumer prices in Spain continued to decrease in September; however, the pace of downward movement improved from previous month. Spanish deflation reached 0.3% this month on a yearly basis, compared to a 0.5% drop in prices in August. At the same time, taking into account Spanish methodology of calculating the indicator, prices went down only 0.2% in September. It raises hopes that Spanish CPI numbers may improve overall situation in the single currency area, where inflation is likely to remain in the 0.3%-0.4% range after data release on Tuesday. Spain experienced one of the hardest economic challenges in the currency bloc, including GDP plunge and strong surge in unemployment. However, nowadays the country’s economy is one of the fastest-growing in the Euro area, as it added annual 1.2% in the second quarter of this year.

Moreover, inflation data for Germany was released better than predicted. While the European Central Bank is going to add extra stimulus to the economy to increase inflation as a major goal, German prices rose 0.8% in September on the annual basis, better than a 0.7% estimate from economists. Month-on-month, however, the CPI was unchanged despite outlook of a 0.1% decline. As Germany accounts for the biggest of Eurozone’s economic activity, its data may considerably influence overall situation in the region.

USD

“The state of the consumer is going to continue to be relatively constructive. They’re pretty much on the best footing that they’ve been this entire cycle.”

- RCB Capital Markets LLC

Consumer spending in the United States increased during the previous month, as rising employment raised sentiment among consumers about future perspectives of their personal finances. Purchases added 0.5% in August on a monthly basis, a rebound from 0.1% decrease a month before. Services sector, which is mostly supported by private spending, accounts for more than 70% of country’s economy, underlying its importance in overall economic success of the U.S. As employers add more jobs, it is increasing households’ income and subsequent spending. However, the most recent data showed that wages jumped only 0.3%, just below the pace of spending’s climb, meaning that U.S. customers use borrowed funds or savings as part of their spending.

Among sub-sectors, Americans spent 1.9% more on buying automobiles, more than 0.1% in July. Purchases of non-durable goods rose 0.3% month-on-month. Analysts explain that car sales in the U.S. continue contributing the most to overall economic strength of the country. Sales surged to annualized 17.5 million units in August, the largest number in more than eight years. Moreover, U.S. population spent 0.4% more on such services as tourism, legal services, personal care and utilities. This category, however, is most likely to be a subject to revising during the next report, as it is difficult to project this kind of spending in a short-period of time in a precise way.

GBP

“More recently, housing demand has cooled considerably as buyers have baulked at the prices being demanded and mortgage approvals have fallen back. As market conditions ease, a period of more modest house price growth is likely."

- Capital Economics

Approvals for new mortgages in the United Kingdom decreased more than expected in August of this year, as the Bank of England’s measures to prevent bubble on the housing market seem to have started working. In total, there were 64,212 new mortgages confirmed by banks last month with the net value of 2.3 billion pounds, a decrease from 66,100 in July. Analysts, however, forecasted a moderate decrease to 65,000. They also point on cooling property market in the country after a considerable increase during last couple of years. Despite the Government’s Help-to-Buy program, aimed to increase lending to families who want to buy a new house, the Bank of England implemented some restrictions on risky lending, as nowadays new mortgages cannot be more than 4.5 times bigger than borrower’s income. Along with that, home prices in the British capital decreased for the first time in two years in September, according to Hometrack Ltd data.

Meanwhile, business lending improved in August, as it added 817 million pounds on a monthly basis, registering the second consecutive month of advance. Still, it is 2.8% below the record level, posted a year before. Lending to small and medium-size firms, however, slipped 301 million pounds or 2.4% year-on-year. On the other hand, new loans to individuals rose 3.2 billion pounds in August, a growth pace of just below the record-high levels.

JPY

“Contrary to the BOJ's view that output is rising as a trend, production is pretty sluggish. The economy won't see a clear pick-up for the rest of this year.”

- Norinchukin Research Institute

According to preliminary data, industrial output in Japan declined 1.5% in August on a monthly basis; however, analysts expected the indicator to increase 0.2% after a 0.4% gain in July. Year-on-year, production dipped 2.9%, also missing experts’ forecasts. Local companies are suffering from weak demand both at home and overseas, which makes their inventories bigger and forces to stop manufacturing process. Trade ministry of the country expected a long-awaited rebound after sluggish growth in recent months amid sales tax hike. Still, it predicts the production to add 6% this month, but to drop 0.2% in October.

At the same time, unemployment level in Japan slipped to the lowest level since June, reaching 3.5% in August. Therefore, economists hope the Japan’s economy to be driven by consumer spending in the future, as it accounts for 60% of the whole economy. Data for August, however, showed continuation of the downtrend in households’ spending, which plummeted 4.7% on a monthly basis, worse than a 3.5% decrease expected by analysts. Consumption is also estimated to drive inflation closer to its target of 2%, but there are still no confident signs that domestic spending levels are going to recover in the nearest future, posing some issues for the government, which is planning to raise the sales tax for the second time.