Daily Forex Fundamental Overview
Fundamental Analysis
EUR
“Today's data and the ongoing weakness of industrial surveys support our view that overall eurozone economic growth is set to slow from 1.5 percent last year to about 1.2 percent this year”
- Capital Economics
The Euro zone industrial production declined sharply for the second month in a row in March, suggesting that the currency bloc’s economic recovery is likely to remain modest despite a stronger start to the year. According to Eurostat, industrial output dropped 0.8% from February, and was just 0.2% higher than in March 2015. The fall was more than the 0.2% drop expected in markets and raises the possibility that the estimate for first-quarter GDP growth will be trimmed in a revision due later today. The Euro zone economy picked up steam in the first three months of the year, growing twice as rapidly as it did in the final quarter of 2015. Economists said the poor showing over the past couple of months is further evidence that the Euro zone is facing a softer economic outlook due to a number of factors, including uncertainty over the state of the global economic recovery, stemming in particular from the slowdown in China.
Meanwhile, consumer prices in the Euro zone’s second largest economy, France, posted another month of deterioration in April measured on an annual basis. The cost of living in France decreased 0.2% in April compared to the same period a year ago. In March, the gauge booked a 0.1% decrease.
USD
“I support a gradual adjustment of short-term interest rates toward a more normal level, but I view the current level as too low for today's economic conditions”
- Esther George, Kansas City Fed President
The number of Americans filing for unemployment benefits increased last week to a more than one-year high. Economists argued that striking telecommunications workers were possibly the main driver of a rise and said the data did not suggest a deterioration in the overall labour market. Initial jobless claims surged 20,000 to 294,000 in the week ended May 7, the Labor Department reported. That marked the highest level since February 2015. Weekly claims have risen for three weeks in a row. Yet, claims have remained below 300,000 for more than a year, extending the longest such streak since 1973. The four-week moving average of claims, considered a better measure of labour market trends as it smoothes out weekly volatility, increased 10,250 to 268,250 last week, the highest level in almost three months.
Meanwhile, Kansas City Fed President Esther George said interest rates are too low for the current US economy. She said she supports gradual rate hikes, adding that low rates can create economic risks. Low rates can cause interest-sensitive sectors to take on too much debt and grow quickly. George votes on the Fed’s policymaking committee and was the only member to vote for a rate lift at the April and March meetings.
GBP
“In that scenario we would expect a material slowing in growth, a notable rise in inflation, a challenging trade-off”
- Mark Carney, BoE Governor
The Bank of England warned Britain's economy would slow sharply, and could even slide into recession, if Britons voted to leave the European Union. The central bank added the Pound could decline sharply, while unemployment would probably climb. Consumers could delay spending and companies may postpone investment decisions. BoE Governor Carney said there were limits to what the BoE could do in response to an "Out" vote. Opinion polls show British voters have been relatively resistant so far to warnings about the economic costs of Brexit, with voting intentions in many polls roughly evenly split.
The Bank of England's May Inflation Report estimates that inflation will return back to the 2% goal by mid-2018, with the Brexit uncertainty weighing on the short-term growth outlook. Given the current threats, even with the UK remaining part of the EU, the BoE is not expected to hike interest rates before 2018. Also, the BoE revised down its outlook for short-term growth to 2% in 2016, from 2.2% predicted in February. At the same time, the BoE also lowered the GDP outlook for 2017 to 2.3%, from 2.4%, and to 2.3% from 2.5% in 2018. All forecasts in the May Inflation Report were made assuming that the British voters will support continued membership in the EU in the referendum.
NZD
“Following solid gains through the latter part of 2015, retail spending growth eased off a bit in early 2016”
- Westpac Banking Corp
New Zealand first-quarter retail sales volumes rose at the slowest pace for three quarters, against economist expectations. According to Statistics New Zealand, the volume of retail sales climbed a seasonally adjusted 0.8% in the first quarter, up from the three months through December. That fell short of economists forecast for a 1% gain. Retail sales volumes for the December quarter were revised lower to 1.1% from 1.2%. Core retail volumes, which strip out the more volatile vehicle-related industries, advanced 1% in the March quarter.
Electronic goods sales surged 3.8%, while clothing, footwear, and accessories sales increased 1.7%. The steep rise in sales under these categories suggest the strength of the New Zealand Dollar is making imported goods more attractive to consumers, given that the country imports most of its electronics and apparel. Offsetting these gains was a 3.8% decrease in specialized food retailing, and a small drop in home and garden related sales. Nevertheless, the lift in retail spending last quarter suggests the upbeat tone of consumer sentiment in New Zealand amid weak inflationary settings and an environment of record-low interest rates. Last month the Reserve Bank of New Zealand kept interest rates on hold after trimming the Official Cash Rate to a record-low 2.25% in March.
