Daily Forex Fundamental Overview
Fundamental Analysis
USD
"The various readings from the Federal Reserve Banks of Richmond, New York and Philadelphia all were in contraction territory for the month of May. On that basis, we are not expecting durable goods orders to continue to surge in coming months "
- Wells Fargo
In April, domestic manufacturers were negatively affected by weak news, though some recently published mixed industrial reports. According to the Commerce Department, orders for durable goods, items ranging from phones to aircraft, surged 3.4% after an upwardly revised 1.9% advance in March. Previously reported durable goods, for March posted a 1.3% increase in March. Strong demand for long-lasting US manufactured goods advanced in April due to orders from transportation sector, namely commercial planes. These orders accounted for 85% of the increase in April bookings. Typically large planes are built or delivered in five years after they are ordered. Nevertheless, companies have been reluctant to invest more heavily because of a tepid global economy and falling exports.
The number of Americans applied for unemployment benefits last week dropped more than expected last week, moving back to near cycle lows as the labor markets remain healthy and the economy regains momentum after stumbling in the first quarter. According to the Labour Department, weekly applications for unemployment aid plunged 10,000 to a seasonally adjusted 268,000 for the week ended May 21. Sustained decrease in claims from the one-year peak address was spurred by transitory events such as the spring break holiday at schools as well as auto plant shutdowns in Michigan.
GBP
"Rise in the ifo suggests the economy has contiuned to grow at solid rates, but the fast pace seen in the first quarter will not be sustained."
- Capital Economics
British economic growth lost steam in the first quarter on the background of unexpected contraction in business investment. The second reading of Britain's first-quarter GDP figures confirmed the loss of momentum in the economic recovery. The Office of National Statistics announced that the economy grew 0.4% in the first quarter, slower than the 0.6% pace in the last three months of 2015, the same as the first estimate given in April. From a year earlier GDP expanded 2%, which was revised down from last month's first reading of 2.1%, the ONS said. Moreover, business investment missed with a fall of 0.5% against 3.2% expected. Also the BBA's mortgage approvals did not meet expectations by sliding to 40.1K against 44.8K predicted.
In addition, a separate report showed that out of the four main components on the output side of GDP, production and construction contracted from the previous quarter, while agriculture and services activity increased, according to a breakdown of the first quarter's reading. Production shrank 0.4% and construction fell by 1%, the ONS said. Manufacturing, the largest component within production, dropped 0.4%. Services, which account for a massive 79% of GDP, increased 0.6%, posting a 13th consecutive quarter of growth. The expansion was less than the fourth quarter's 0.8% pace.
JPY
"Japan's inflation is going to remain weak. If you look at economic and price fundamentals, the BOJ has to ease further soon."
- Takashi Shiono, Credit Suisse Group
Japan's Consumer Price Index dropped for a second straight month in April as weak consumption discouraged firms from raising prices and central bank Governor Haruhiko Kuroda struggles to spur inflation with record asset purchases and negative interest rates. According to a statistics bureau report, the national core consumer prices, which exclude fresh food, dropped 0.3% in April from a year earlier, equalling the multi-year low hit in March, while the expectations were at a decline of 0.4%. Moreover, indicating that deflationary pressures may strengthen in the months ahead, the core CPI reading for Tokyo declined to -0.5% on a year-on-year basis, below the 0.3% drop of March and anticipations for an acceleration to -0.4%.
In addition, a separate research showed that the core-core CPI rate which strips out both energy and food prices, rose by 0.7% from a year earlier, matching the figure of March. Meanwhile, headline CPI declined 0.3% from a year earlier following a 0.1% annualized drop in March. The lack of price growth will intensify pressure on the Bank of Japan to consider further monetary stimulus after Kuroda disappointed the markets by taking no action at April's meeting. The data is the final set of consumer price indicators to be released before the BOJ's board meets on June 15-16.
