Fundamental Analysis
EUR
“The German industry is still struggling to gain momentum. The August drop marked the first decline for two consecutive months since the beginning of the year. A clear sign for caution.”
- ING
German industrial production unexpectedly declined in August, signalling that Europe’s largest economy is feeling the effects of weaker demand from emerging markets. According to Destatis, production in the Euro area’s powerhouse dropped by 1.2% in the reported period, following a revised 1.2% growth in July. Analysts expected a reading to gain 0.2% in August. On an annual basis, industrial output rose 2.3% in the given month, compared to a revised 0.8% increase in the prior month, while markets projected a 3.3% growth. The recent report also revealed that Germany is currently grappling with a slowdown in China and other emerging markets, as factory orders from countries outside the 19-nation Euro region fell more than 13% in July and August combined. Therefore, Germany’s production focus is shifting to strengthening domestic spending. Meanwhile, industrial sector in Spain expanded at a slower pace in August after a significant gain seen in the previous month. Industrial output in the Euro zone’s fourth largest economy showed a 2.7% year-on-year rise during August, compared to the previous month’s 5.2% reading. In the meantime, France's external trade deficit narrowed in August, as imports fell at a faster rate than exports. According to the French Customs, the deficit shrank to 2.975 billion euros in August from 5.283 billion euros in the same month last year.
GBP
“The UK manufacturing sector remained sluggish at the end of the third quarter, stunned by a triple combination of a sharp slowdown in consumer spending, weak business investment and stagnating export order inflows.”
- Markit
Both manufacturing production and the overall industrial output in the UK increased comfortably above expectations in August, driven by a surge in oil and gas extraction, as well as by a rebound in car production. The factory output rose to a six-month high of 0.5% on a monthly basis in August, up from a revised decline of 0.7% a month before, while markets expected to see a 0.4% gain. However, the output in the sector fell 0.8% when compared with the same month a year ago. The primary upward driver for a monthly growth in the sector was a notable increase in car production after an earlier summer shutdown in July. That, in turn, helped to push the overall transport equipment segment up to a rise of 4.6% in August.
At the same time, the overall industrial production in the United Kingdom advanced 1% on a month-on-month basis, and was driven mainly by a significant increase in oil and gas extraction from the North Sea, rising by 8.7% in August. In the prior month the industrial output contracted 0.3%. Nevertheless, despite an advance in August, the manufacturing sector remains one of the most volatile in the UK, while producers continue to struggle with softer global markets and strong exchange rate of the Sterling.
CAD
“Lower commodity prices weigh on the outlook through reduced disposable income and a decline in resource-related investment. The latter has been particularly sharply felt in Canada, where growth is now projected to be about 1% in 2015.”
- IMF
The number of construction plans in Canada decreased in August, with the unexpected drop in the total value of building permits. As was reported by the Statistics Canada, the number of permits fell for the first time in three months in August, with both residential and non-residential construction intentions declining. At the same time, according to the report, builders in Canada took out C$7.5 billion worth of permits during the given period, down by 3.7% from July. Meanwhile, the prior month’s drop of 0.6% was revised to a 0.7% gain. The reading missed market expectations of a 0.3% advance. Vancouver appeared to be a leading city in a decline of permits, as those decreased by 26.1% on a monthly basis in August. However, the city’s total value of permits remained 52.3% greater than in the same month a year ago.
Meanwhile, Canada's most populated province of Ontario grabbed the biggest gains both in residential and non-residential sectors, as Toronto, country’s biggest city, showed a 50.3% rise in permits compared to the preceding month, while on a yearly basis permits increased by 146% in August. In the meantime, Canadian economists have been keeping a close eye on the domestic housing situation, monitoring for signs of possible overheating, especially in light of rising household debt levels.
JPY
“Japan's economy continues to recover moderately although exports and production have been affected by the slowdown in emerging economies.”
- Bank of Japan
As was broadly expected, the Bank of Japan made the decision to keep its monetary policy unchanged in spite of growing concerns over economy and inflation that is clearly below the bank’s target rate of 2%. The Central Bank’s Policy Board made up its mind to hold the yearly asset purchases, which is the primary tool for beating deflation and generating inflation, at 80 trillion yen. The BoJ Governor Haruhiko Kuroda stated that the Bank is going to steadily implement its Qualitative and Quantitative Easing programmes, in order to reach the inflation target of 2% as soon as possible. In addition to that, the Governor noted that the BoJ will take into consideration all existing threats to the Japanese economy and optimize its monetary program in an appropriate way.
The country’s economy experienced a contraction between April and June and some market experts anticipate another slowdown during the period of July-September due to decreasing global demand and weak consumption. Core consumer prices tumbled in the eight month of the year to post the first yearly fall since the BoJ’s deployment of its massive stimulus programme more than two years ago. This in turn started raising doubts, whether intensive money printing alone can speed up inflation to 2%.
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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