Daily Forex Fundamental Overview
Fundamental Analysis
EUR
“It will clearly be a very long, hard slog to get eurozone consumer-price inflation back up to the ECB’s target rate”
- IHS Global Insight
Data on inflation from Eurostat added to the worries of the European Central Bank as the Euro area returned to deflationary territory. Consumer prices fell by 0.2% on an annual basis in April, showing a negative trend from March, when the gauge displayed no change. On a month-to-month basis the gauge grew 0%, down from last month's 1.2% growth and in line with estimates. The development is certainly bad news for the ECB, which has pursued strong monetary stimulus and quantitative easing measures, targeting the low inflation levels. The QE programme was expanded to 80 billion dollars per month in March, while interest rates were pushed further into the ground to -0.4%. However, regardless the present gloomy inflationary scene, ECB’s struggles to curb the deflationary pressures cannot be yet discredited. Analysts believe that the central bank will stand pat for a while, but they bet that it will eventually have to do more.
The 19-country block experienced deflation for the first time in 2014, following a consistent decline in the measure. The CPI has showed levels under the targeted 2% since March 2013 already, entering the “danger zone” with numbers under 1% in November the same year.
USD
“They are ready to pull the trigger on a rate increase in June”
- BMO Private Bank
The minutes of the April Fed meeting, when the US central bank left interest rates on hold in line with economists’ expectations, showed that officials believed the US economy could be ready for another interest rates hike in June. Most members of the policy-setting committee's said they looked forward to seeing signs that economic growth was gaining steam in the second quarter and that employment and inflation were firming, the minutes showed. Fed officials said recent economic data made them more confident inflation was climbing toward the 2% target and that they were less concerned about a global economic downturn. However, some policymakers were worried about a slowdown in US economic growth during the first quarter, when gross domestic product increase slowed to a two-year low of 0.5%. Yet others argued that ongoing strong job growth indicated the economy was still on track and the growth data could be flawed. Data since the end of April pointed to an increase in consumer spending and manufacturing output, supporting the view that economic growth was gaining momentum after stalling in the first quarter.
Some policy makers said they were worried financial markets could be roiled by a possible UK exit from the European Union in a vote next month or by China's exchange rate policies.
AUD
“The employment rate has hit another record high, but this time the increase is quite modest. With unemployment very little changed, that is further evidence the jobs market could be cooling off.”
- Office for National Statistics
The unemployment rate in the UK remained unchanged at a decade-low for the fifth straight month in March, though the claimant count unexpectedly declined and average earnings presented a mixed picture in comparison with forecasts. The number of people in work rose by 44,000 to 31.6 million in the three months to March compared to the previous three-month period, with increases in both full- and part-time work and the number of self-employed. Furthermore, the Office for National Statistics reported that unemployment fell by 2,000, to 1.7 million with the jobless rate holding steady at 5.1%. Data showed that the unemployment rate was last lower in 2005. Moreover, a separate research showed that the claimant count fell by a seasonally adjusted 2,400 in April, compared to expectations for a increase of 4,300 people, and following an advance of 14,700 a month earlier, when the figure was revised from a previously reported gain of 6.700. The upward revision in the claimant count was the biggest monthly rise since September 2011.
Meanwhile, the average earnings index, including bonuses, rose by a seasonally adjusted 2.0% in the three months to March, above forecasts for a 1.7% increase and after rising by a revised 1.8% in the three months to February.
AUD
“The RBA’s near-term outlook for rates is now tied to the inflation outlook which has been lowered based on the weak first-quarter CPI read and subdued inflationary pressures”
- National Australia Bank
Australia’s economy added jobs in April and the unemployment rate held at the lowest level in more than two years as the number of people in part-time roles increased. According to the Australian Bureau of Statistics, the jobless rate was unchanged at 5.7% in March, beating economists’ expectations for a rise to 5.8%. A net 10,800 jobs were added to the economy last month, missing analysts' expectations of a 12,000 net increase and compared with a revised 25,700 in March. However, Australia's labour force participation rate unexpectedly fell last month, from 64.9% in March to 64.8%. Additionally, a report showed wages climbed 0.4% in the March quarter, for an annual increase of 2.1%, the lowest annual rate since the data series began in 1997.
The RBA this week said that data suggested employment would continue to increase, albeit at a somewhat slower pace than over the previous year. Australia's unemployment rate is predicted to remain around 5.8% in 2016, according to the RBA's May Statement on Monetary Policy, before dropping at the end of the forecast period when GDP growth is expected to pick up. For now, stubbornly low inflation is the central bank’s bigger concern. In the March quarter Australia's headline inflation rate slowed from 1.7% to 1.3%, but more importantly, core inflation also declined sharply, triggering the RBA's interest rate cut on May 3.
JPY
"The government needs to focus on supply-side measures. The global economy is losing momentum and the yen is stronger than most companies would like it to be right now"
- Tokai Tokyo Research Center
Japan's core machinery orders increased more than expected in March but firms predict orders to drop in the current quarter as companies become increasingly cautious due to a surging Japanese Yen and weakness in overseas economies. Core orders, a leading indicator of business investment, surged 5.5% from the previous month, stronger than a 0.7% increase expected by economists. On a an annual basis, core orders surged 3.2%. For the quarter, core orders gained 6.7% in the three months to March from the previous quarter, but are predicted to decline 3.5% in the April-June period. The projected fall in machinery orders in the second quarter comes amid concerns that the appetite for investment will wane due to the likelihood of slower global growth.
Business investment has been moderately improving in the past few
years but is yet to return to levels seen prior to the global financial
crisis despite efforts by Prime Minister Shinzo Abe to urge firms to
spend more for future growth. Policy makers are relying on an increase
in capital expenditure to boost gains in productivity, create new jobs
and increase wages. Gross domestic product data for the first quarter
showed household spending lacked strength and capital expenditure
declined, a worrying sign that domestic demand could falter.
