Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“We have informed our executive board that Greece is now in arrears and can only receive I.M.F. financing once the arrears are cleared”

- Gerry Rice, a spokesman for the IMF

Greece fell in its financial abyss after the bailout programme, which had been supporting the economy for five years, expired at midnight Tuesday and the country missed its crucial 1.6 billion euro loan repayment to the IMF, reigniting fears over whether it will be able to remain in the currency bloc. Greece became the first developed country to fall into arrears on payments to the fund joining such countries as Sudan, Somalia and Zimbabwe.

Inflation across the 19-country currency bloc slid on year in June to 0.2% from 0.3% a month earlier. The decline in consumer prices was primarily caused by a 5.1% decline in energy prices. Despite the fall, June marks the third month in a row that the Euro zone’s inflation has remained positive. In a separate release Eurostat said the unemployment rate in the Euro bloc remained unchanged at 11.1% in May. Meanwhile, in Germany, the Euro zone’s number one economy, the number of people out of work dropped by 1,000 in June. The jobless rate remained at 6.4%, the lowest level since the country’s reunification. In addition to that, German shoppers spent more lavishly in May compared with the previous month. Measured on a monthly basis, retail sales increased 0.5% in real terms in May compared with a 0.3% rise expected by economists. However, in annual terms, the indicator declined 0.4% in the reported month after the 1.1% surge in the previous month.

USD

“Over the past two months, consumers have grown more confident about the current state of business and employment conditions”

- Lynn Franco, director of economic indicators at the Conference Board

US consumer confidence rose solidly last month as Americans felt much more upbeat about the nation’s economy and labour market, reinforcing the view the world’s number one economy was back on track after a shaky start to the year. According to the Conference Board, the index of consumer confidence increased to 101.4 in June, up from a revised 94.6 a month earlier. The survey results showed households grew more optimistic about the jobs market. The share of Americans who said jobs were hard-to-get declined to 25.7%, compared with 27.2% in May. While the share of those who viewed jobs were plentiful climbed to 21.4% in the reported month, up from 20.6% in May, supporting the view of tightening labour market conditions. In addition to that, the current situation index, a gauge of households’ assessment of current economic conditions, soared to 111.6 from a revised 107.1 a month earlier. Consumers’ expectations for economic activity over the coming six months surged to 94.6 from 86.2.

Meanwhile, a separate release showed single-family home prices increased in April, albeit at a slower pace, easing concerns rising home values will undermine affordability for first-time buyers. The S&P/Case Shiller composite index in April climbed 4.9% in April from a year ago. The year-on-year rate of appreciation slowed a bit from 5.0% in March.

GBP

“The slight upward revision to growth in the first quarter of 2015 is down largely to the recently announced new methods to measure construction output"

- Joe Grice, ONS Chief Economist

The British economy grew faster than previously thought in the first quarter of the year, as household’s disposable income increased at the fastest annual rate since 2011. The economy expanded 0.4% in the first three months, according to the Office for National Statistics, up from an initial estimate of 0.3%. Most economists and the Bank of England expect growth to accelerate later this year. The ONS also revised up an annual growth to 2.9% from 2.5%. For 2014 as a whole, the UK economy grew 3.0%, the fastest pace since 2006. The upward revision to Britain’s economic output was largely due to methodological changes in construction. Yet, the largest upward driver was household consumption, which rose 0.9% in the three months through March, marking the 15th straight quarter of positive growth. Meanwhile, quarterly growth in services output was kept unrevised at 0.4%.

A separate report showed the UK’s current account deficit shrank less than expected in the first quarter. The British current account recorded a seasonally adjusted shortfall of 26.5 billion pounds in the first three months, narrowing from a deficit of 28.9 billion pounds in the previous quarter. Economists, however, had expected the current account gap to contract to 23.8 billion pounds.

CAD

“The economy is going to remain sluggish”

- Doug Porter, chief economist at BMO Capital Markets

Canada’s economic growth unexpectedly fell in April, hurt by a decrease in activity in the mining and oil and gas extraction industry, according to Statistics Canada. The nation’s gross domestic product declined 0.1% in April from the previous month, compared with economists’ expectations for a 0.1% gain, and marking the fourth monthly decrease in a row. The Canadian economy shrank in the first quarter at its worst pace in almost six years, undermined by the decline in oil prices. Nevertheless, economists and Bank of Canada’s policy makers expect the economy to gather momentum, starting with the second quarter. Oil and gas extraction plummeted 3.4%, largely due to a drop in the non-conventional oil extraction sector, which saw maintenance shutdowns and production difficulties in April. Mining and quarrying also plunged 3.4%. Nevertheless, activity in the support industries around mining and oil and gas extraction rebounded after four straight months of decline, surging 9.9%. A 1.6% climb in wholesale trade helped offset some of the weakness elsewhere, though retail trade declined 0.2%. Measured on an annual basis, the Canadian economy grew at the pace of 1.2%, compared with the 1.5% rise in March.

The BoC is expected to keep interest rates unchanged at 0.75% at its next meeting in mid-July, when it will also provide an updated economic outlook.

CNY

“However, it is likely that more stimulus measures will be required to ensure that the sector can regain growth momentum and to encourage job creation”

- Annabel Fiddes of the research firm Markit

China’s manufacturing sector remained weak in June, a private survey by HSBC showed, which once again contradicted an official report. The HSBC China Manufacturing PMI rose slightly to 49.4 in the reported month, up from 49.2 in May. A figure below the 50-mark threshold signals contraction in the sector. The final reading appeared to be lower than HSBC’s flash estimate of 49.6, as the preliminary figure is based on 85% to 90% of responses to the PMI survey. In contrast, China’s official PMI reading for June indicated the country’s factory activity remained in the expansion territory, coming in at 50.2, unchanged from the preceding month. Yet, both surveys showed manufacturing employment decreased. HSBC said jobs were cut at the fastest rate since February 2009 in the aftermath of the global financial crisis. In the meantime, China's services PMI reading for June climbed to 53.8 from a reading of 53.2 in May, reversing three months of consecutive drops. The June services reading was the highest since February 2015.

Expansion in China's economy, a key engine of global growth, slowed to 7% in the first quarter of 2015 from 7.3% in the final three months of 2014, marking the worst result in six years since the height of the global financial crisis. In order to support the economy, Chinese authorities have embarked on additional stimulus measures this week.