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Euro zone Sentix investor confidence hits 17-month low in October
Investor confidence in the euro zone for October deteriorated to the lowest level in 17 months, underlining concerns over the outlook for the region’s economy, data showed on Monday.
In a report, market research group, Sentix said its index of investor confidence slumped to -13.7 this month, the lowest since May 2013, from a reading of -9.8 in September. Analysts had expected the index to decline to 11.5 in September.
On the index, a level above 0.0 indicates optimism, below indicates pessimism.
The dollar rose to a high of four years against other major currencies in September.
The dollar index is on track to reach one of its biggest monthly gain since February 2013 amid expectations that the Federal Reserve is close to increasing interest rates way.
German factory orders in biggest drop since financial crisis
German factory orders tumbled in August at their fastest rate since 2009, as geopolitical shocks and the stagnant eurozone caused demand to falter.
Factory orders fell 5.7 per cent in August compared with the previous month, the biggest drop since January 2009 when demand slumped in the aftermath of the global financial crisis.
However, Germany’s economy ministry, which released the figures on Monday, played down their significance, saying the timing of school holidays had influenced the result. In July factory orders rose by 4.9 per cent. Morgan Stanley therefore cautioned clients against “reading too much into a single report”.
Still, the data were worse than the 2.5 per cent decline economists had anticipated, according to a forecast compiled by Bloomberg, thereby casting a further shadow over Germany’s near-term economic prospects.
Developments in Russia and Ukraine, a slowdown in China and deflation in the eurozone have dented confidence in recent months. German GDP fell 0.2 per cent in the three months to June, compared with the previous quarter.
“This one data point is of course massively distorted by the timing of factory holidays. We do see a weakening of German factory numbers since April, however this is mostly in domestic, rather than foreign orders,” said Holger Schmieding, chief economist at Berenberg.
“We don’t expect much more than stagnation in the German economy for the remainder of the year. Geopolitics is holding back the economy for now.”
Berenberg expects the German economy will expand no more than 0.1 per cent in both the third and fourth quarters.
“It doesn’t bode well for industrial production in the fourth quarter to be honest,” said Carsten Brzeski, chief economist at ING-DiBa. “What was worrying with the order data are that it was across the board. In Germany many commentators love to blame everything on Putin but it’s more than that.”
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I think if the price keep dropping we will see a change in the interest rate from the FED bank sooner than we expect.
German Industrial Production -4.0% vs. -1.5% forecast
German industrial production fell more-than-expected last month, official data showed on Tuesday.
In a report, Destatis said that German Industrial Production fell to a seasonally adjusted annual rate of -4.0%, from 1.6% in the preceding month whose figure was revised down from 1.9%.
Analysts had expected German Industrial Production to fall -1.5% last month.
EURUSD broke higher during the course of yesterday session, testing the 1.2650 level and closing above the 10 day moving average. We could see sellers coming in between 1.2750 and the all-important 1.28 handle.
EUR/USD remains lower on IMF forecast, German data
The euro remained lower against the U.S. dollar on Tuesday, after the International Monetary Fund cut its forecast for global economic growth this year and as downbeat German data continued to weigh.
EUR/USD hit 1.2584 during U.S. morning trade, the session low; the pair subsequently consolidated at 1.2643, easing 0.09%.
The pair was likely to find support at 1.2502, Monday's low and resistance at 1.2761, the high of September 26.
Market sentiment was hit after the IMF downgraded its global growth forecast for both this year and next, due to stagnation in Europe and a weaker-than-forecast recovery in Japan.
The agency now sees 2014 global growth of 3.3% and 2015 growth of 3.8%, a decline of 0.1% for 2014 and 0.2% for 2015 from forecasts made in July.
The single currency had weakened earlier, after data showed that industrial output in Germany dropped by 4.0% in August. It was the largest decline since early 2009 and was much worse than forecasts for a fall of 1.5%.
The report came one day after data showed that German factory orders fell 5.7% in August, fuelling fears that the euro area’s largest economy is falling into a recession.
Meanwhile, the greenback remained supported as diverging monetary policy expectations have been boosting the greenback against the euro in recent months, with the European Central Bank likely to stick to a looser monetary policy stance amid concerns over deteriorating inflation expectations and slowing growth.
Elsewhere, EUR/JPY was down 0.61% to 136.82, while EUR/GBP fell 0.29% to 0.7845.
The yen found support on Tuesday after Japanese Prime Minister Shinzo Abe voiced concerns over the impact of a weaker yen on the economy.
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EUR/USD: Are Bears Exhausted Or Just Pausing?
Tomorrow marks the five-month anniversary of EUR/USD’s peak at 1.40, when ECB President Draghi hinted heavily that the central bank was considering cutting interest rates or engaging nontraditional monetary policy. At the time, opinions were split about how the ECB would look to stimulate the Eurozone economy, or even if any stimulus was required at all. Now, five months on, the central bank has been forced to throw everything it had, including the proverbial “kitchen sink,” at the Eurozone’s stubborn deflation and still there are concerns that the region could slip into recession.
Given the entrenched economic issues and extremely accommodative monetary policy, it’s not surprising that EUR/USD has collapsed over the last five months, with rates briefly tagging the psychological support at 1.2500 last week, down over 1,500 pips from the early May highs. Yesterday, the pair bounced back sharply from those lows, causing some traders to ponder whether the prolonged downtrend may finally be coming to an end. Overall, we still favor continued weakness in the world’s most widely-traded currency pair, but it’s worth diving into the current technical picture to outline what developments could change the EUR/USD’s bearish outlook.
First and foremost, a break above the clear 2-month bearish channel around 1.2700 would be a big red flag for EUR/USD bears. Astute readers will also note that the 1.2700 level represents a key horizontal area of previous-support-turned-resistance, making it all the more important.
Perhaps the best indication of the health of the bearish trend comes from the RSI indicator. Many traders are accustomed to using only the default RSI settings of 70 and 30 for overbought and oversold, respectively, but few realize that these thresholds can actually shift up or down by about 10 points in strongly trending markets. In the case of a prolonged downtrend, like we currently see in EUR/USD, the indicator tends to top out around 60 and bottom out around 20; therefore, as long as the 60 level in the 4hr RSI continues to cap rallies, the downtrend remains intact.
As we go to press, rates are trading directly in the middle of the 1.2500-1.2700 range, and a period of consolidation is favored after the recent drop. That said, as long as EUR/USD remains below 1.27 and the RSI indicator is mired below 60, lower prices are favored. Conversely, a break above 1.2700 and the 60 barrier in the RSI indicator would suggest that a more substantial bounce could emerge.
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In mid-September, the Fed said it will soon start increasing interest rates short term. Does the time is coming?
Today the dollar started the day lower against almost all G10 peers. Only been stable against the EUR.
Germany Is Going Off The Rails, And It Could Take Everyone Else Down With It
Germany's growth forecast just got slashed by the International Monetary Fund (IMF): It knocked 0.5 points off its growth forecast for this year, a worse slowdown than the eurozone overall.
A German recession, or at least the shrinking of the country's manufacturing base, suddenly seems possible. The country already recorded a drop in GDP in the second quarter of the year.
Here are three major reasons that people are moving in a more bearish direction about Germany:
Germany Can't Escape The Eurozone. Germany has been the eurozone's notable outperformer in the past few years, weathering the financial crisis and euro crisis to an impressive degree.
But that doesn't mean it can buck regional trends completely: Eurozone growth is somewhere between low and non-existent, and the currency union's other large economies are Germany's main export partners. Poor domestic demand there will mean a limited market for Germany's firms.
The chart below from Oxford Economics shows how little Europe's "recovery" since the recession that ended in 2013 has boosted German exports.
Germany's Exporters Are Very Exposed To A Slowing Asia. In May, Steen Jakobsen, chief economist at Saxo Bank, explained this on CNBC. At that time, it seemed like an odd thing to say:
This is more to do with the global macro picture. I’ve stated for a long time that the slowdown that’s happening, the rebalancing of Asia will have a material impact on German exports as we move to the second half of this year … Germany’s certainly becoming less competitive … Overall I’m concerned about Germany because they were the biggest beneficiaries of the expansion in capital goods in Asia during the crisis.
But he’s probably feeling pretty vindicated now: A drop in capital goods production led to August’s collapse, with a shocking 8.8% decline.
Asia's current slowdown isn't coming to an end anytime soon. The IMF expects Chinese growth to fall below 7% during the next couple of years, the lowest level since the early 1990s.
An Energy Policy U-Turn Leaves The Country At Risk. German coal use is back at the highest levels in nearly a quarter of a decade, after the country's U-turn on nuclear power.
The Financial Times is calling it "arguably the most ill-judged decision of (Angela Merkel's) eight years in office." The policy change was made after Japan's Fukushima disaster, though Germany is not exactly exposed to tsunamis in the same way. Germany is already a very expensive country for energy use, even by European standards, and the decision makes it more reliant on Russia.
"Energy intensive industries in particular have lost confidence in the future of Germany as a business location, " former Deutsche Bank chief economist Thomas Mayer told Reuters.
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