Market Review – Fundamental Perspective

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Economists forecasted that a report may show today that pending home sales may have depreciated 1 percent in June from the previous month, when it rose 6.7 percent. Furthermore investors assume that tomorrow the Conference Board will say its gauge of consumer confidence declined to 81 in July from 81.4 in June. This month Federal Reserve Chairman Ben Bernanke told Congress that any reduction in stimulus would depend of the economy’s performance. The USD weakened to a one month low versus the EUR as the market weighed whether the U.S. economy is robust enough for the FED to start reducing stimulus. Tomorrow the Federal Open Market Committee is going to start a two-day policy meeting. The EUR/USD
traded 1.3287. Japan’s currency rose as the demand for haven assets increased. The USD touched 97.78 JPY and the EUR/JPY was at 130.14. On Friday the Standard & Poor’s Index climbed 0.1 percent and the Dow Jones Index remained unchanged. The MSCI World Index of shares fell 0.1 percent on July 26, falling for a fourth day. The Bloomberg Dollar Index which monitors the USD versus 10 other major currencies dropped for a third week. Last week New Zealand’s Governor Graeme Wheeler signaled that he may increase interest rates next year. The rose of the rates depends on the impact on prices of the nation’s growing housing. As a result the NZD was nearly unchanged after it was the biggest winner last week. The NZD/USD traded close to a six-week at 0.8075 and the NZD/JPY was at 79.12. Australian’s currency followed a two-week advance after iron ore, which is Australia’s largest export, strengthened to an almost three month high. The AUD/USD was little changed at 0.9255 and the AUD/JPY was at 90.76. Canada’s currency was close to a five-week high at 1.0270 versus the USD.

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Crude Oil, which is Canada’s largest export, remained above 100 USD per barrel in the past three weeks. As a result the CAD climbed versus the majority of its most traded peers. Investors estimated that tomorrow a report will show that the economy in Canada rose 0.3 percent in May
from 0.1 percent the month before. Last week a report revealed that retail sales in May climbed at the fastest pace in three years. The USD/CAD was at 1.0265 and the CAD/JPY traded at 95.34.
The market forecasted that tomorrow data will show the U.S. economy expanded at a slower pace while the Federal Open Market Committee starts its two-day policy meeting. Yesterday data showed that an index U.S. pending home sales fell 0.4 percent in June from the previous month. Today economists expect that the Conference Board will say its gauge of consumer confidence dropped in July to 81.3 from 81.4 in June. Tomorrow the European Central Bank is going to set policy meeting. Furthermore the demand for haven assets increased after equities around the world declined and growth in China is losing momentum. Investors assume that China may miss the nationwide 7.5 percent expansion goal as official concern over localgovernment financing threatens to curb funding for investment. As a result Japan’s currency was able to held gains and traded 0.3 percent from a month high against the USD. The USD/JPY was at 97.92 and the EUR/JPY touched 129.87. The EUR/USD was nearly unchanged at 1.3263. The Dow Jones Index of shares dropped yesterday 0.2 percent and the Standard & Poor’s Index also tumbled 0.4 percent. The MSCI World Index of stocks declined 0.5 percent yesterday.

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Yesterday the Dow Jones Index of shares and the Standard & Poor’s Index of shares remained unchanged. Today economists are expecting the Federal Reserve’s policy statement for signals on when it may cut bond buying that tends to debase the currency. Yesterday data showed that U.S. consumer confidence dropped to 80.3, which was more than expected. Today the market forecasted that data will show a slowing growth in gross domestic product, which might have grew at a 1 percent annualized rate from April through June, compared with 1.8 percent in the previous three months. Furthermore investors estimated that today a report from the ADP Research Institute might show employers added 180,000 jobs in July, which is less than the
188,000 in June. As a consequence investors expect that the today the FED will leave interest rate unchanged at a record low. Tomorrow the market expects policy decisions from the European Central Bank and the Bank of England. According to a poll the ECB might leave its benchmark interest rate unchanged at 0.5 percent as well as the Bank of England, which in addition will probably keep its bond-purchase program at 3875 billion pounds. Yesterday data showed that industrial production in Japan dropped 3.3 percent, which is the most in two years.
The USD is set to close out a monthly loss versus nearly all of its most traded counterparts. The USD/JPY was nearly unchanged at 98.06 and the EUR/USD traded at 1.3261. The EUR touched 130.05 JPY.
Australia’s central bank governor said that there is still enough space to cut interest rates and as a result the AUD declined and approached the weakest level in three years versus the USD. The AUD/USD trades at 0.9043. This year the AUD tumbled 10 percent and is therefore the worst performance among the major currencies. The EUR already rose 5.4 percent this year, while the USD fell 4.8 percent and the JPY slid 8.5 percent.

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Yesterday the Federal Reserve said that inflation which is persistently below its 2 percent objective could pose risks to economic expansion. The FED noted difficulties in economy and decided to leave its stimulus program unchanged at its monthly meeting and keep interest rates at zero. Furthermore data showed yesterday that U.S. gross domestic product climbed at a 1.7 percent annualized rate, after it had gained 1.1 percent in the past quarter. Economists had only forecasted an advance of 1 percent. Beyond that data showed that companies in the U.S. increased payrolls in this month by the most this year. The rose of 200,000 in employment was more than the market had estimated and followed a revised 198,000 gain in June. In addition a report from the European statistics office revealed yesterday that the euro-area unemployment rate remained unchanged in June at 12.1 percent. Euro-area inflation held steady at 1.6 percent in July. Mario Draghi said in the past month that they will keep borrowing costs low for an extended period. As a result investors estimate that today the interest rate will be left unchanged by the ECB and the Bank of England. The EUR/USD climbed 0.3 percent to 1.3305 and the USD/JPY fell 0.2 percent to 97.80. The EUR/JPY traded at 130.05. Yesterday the Dow Jones
Index of equities dropped 0.1 percent while the Standard & Poor’s Index remained unchanged. Speculations came up that the Reserve Bank of Australia is going to cut borrowing costs next week which lead to a decline of the AUD to a three year low versus the USD towards 0.8950.
Economists assumed that the Bank of Canada will consider tightening monetary policy before the end of this year as they are expecting an annualized growth of 1.8 percent in the second quarter. The USD/CAD traded at 1.0277 and the CAD/JPY was at 97.80.

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A government report from last Friday showed that employers added fewer workers in the past month than economists had expected. Payrolls advanced by 162,000 in July, which is the smallest increase in four months. Unemployment rate declined to 7.4 percent from 7.6 percent.
As long as this rate remains above 6.5 percent the central bank plans to hold its target interest rate close to zero. This released data damped speculation that the Federal Reserve will slow the pace of bond purchases anytime soon. On Friday the Standard & Poor’s Index increased 0.2
percent and the Dow Jones Index of shares climbed also 0.2 percent. The EUR/USD was at 1.3274 and the USD/JPY traded at 98.90. The EUR/JPY touched 131.31. On the 3rd of August the Beijing-based National Bureau of Statistics said that the nonmanufacturing purchasing Managers’ Index strengthened to 54.1 last month from 53.9 in June. A reading above 50 signals expansion. As a result the USD snapped a five-day gain versus the
AUD and was at 0.8891. The NZD decreased versus nearly all of its most traded counterparts after China and other nations banned imports of milk powder from the world’s largest producer Fonterra Cooperative Group which is set in New Zealand. The NZD/USD was at 0.7764. Canada’s biggest trading partner is the USA and according to government reports, Canada’s economic growth is losing momentum and is slower than the economy in the US. This lead to a depreciation of the CAD versus nearly its entire most traded counterparts. The USD/CAD appreciated to 1.0393.

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Yesterday the Institute for Supply Management’s non-manufacturing index for the U.S. increased to 56 in the past month, economists had only forecasted a rose to 53.1. Beyond that the President of the Federal Reserve Bank of Dallas Richard Fisher said the central bank is closer to
slowing bond purchases that have stoked global equity gains. As a result the USD depreciated for a second day versus the majority of its 16 most traded peers. The USD/JPY fell 0.7 percent to 98.30 and the EUR/USD climbed 0.1 percent to 1.3258. The EUR/JPY declined 0.8 percent to
130.30. The GBP/USD was able to gain for a second day as yesterday’s announced U.K. services added to signs Britain’s economy is gathering momentum. The GBP/USD strengthened to 1.5352. Today the market expects that a German report will show factory orders rose in June
and that the Italian economy, which is the third largest in Europe, contracted at a slower pace last quarter. Economists estimated that gross domestic product fell 0.4 percent in Italy in the second quarter, following a 0.6 decline in the first quarter. Yesterday the Dow Jones Index decreased 0.3 percent and the Standard & Poor’s Index dropped 0.1 percent. According to media estimates the Australian Reserve Bank is going to cut benchmark rates by
25 basis points to a record low at 2.5 percent at its meeting today. In consequence the AUD is close to its lowest level in three years versus the USD and touched 0.8918. The AUD declined versus all of its most traded counterparts and was at 87.46 JPY. New Zealand’s currency advanced after the trade minister had said that the Chinese restrictions on products from New Zealand’s largest company Fonterra Cooperative were less severe than it has been reported. The NZD/USD rallied to 0.7840.

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Yesterday the Reserve Bank of Australia cut its key rate to a record low of 2.5 percent, which was the second reduction in this year. Economists do not expect further cuts in this year, while they assume that today data may signal that the housing sector is strengthening. It is estimated that home loan approvals increased 2 percent in June, following a 1.8 percent rose in May. Yesterday it was reported that home prices climbed 5.1 percent in the second quarter 2013, which was more than expected. As a consequence Australia’s currency traded near the highest level this month and was at 0.8975 versus the USD. The AUD/JPY was at 87.47. Data showed today that New Zealand’s unemployment rate rose to 6.4 percent in the second quarter this year. The NZD/USD touched 0.7900 and the NZD/JPY was at 76.94. Japan’s currency advanced to a six week high as the Bank of Japan starts a policy meeting today. In addition tomorrow a report may shot that Japan posted a current account surplus. The USD/JPY fell 0.5 percent to 97.24 and the EUR/JPY weakened 0.5 percent to 129.48. The EUR reached almost a seven week high versus the USD after a German report showed that factory orders increased 3.8 percent in June, as economists only had forecasted an advance of 1 percent. This might be a sign that the euro region is recovering. As a result of that the EUR appreciated 0.4 percent to 1.3305 USD. Yesterday the Standard & Poor’s Index dropped 0.6 percent and the Dow Jones Index declined also 0.6 percent. Today the Bank of England Governor Mark Carney is going to present a review for implementing forward guidance in their inflation report. Data had already reveal that industrial production climbed in June more that estimated. The GBP/USD fell to 1.5323 and the EUR/GBP was at 0.8676.

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Fitch affirmed yesterday that Germany will keep its top credit rating because the government had beat its own budget targets and positioned Europe’s largest economy on the path to growth. Economists forecasted that today German data might show June’s trade surplus widened. Exports might have outpaced imports by 15 billion euro and the current account surplus climbed to 16 billion euro. Last week European Central Bank President Mario Draghi said that economic indicators signal the European Union is past the worst of its longest-ever recession, while reiterating that interest rates will stay low for the foreseeable future. As a consequence the EUR held a two day advance versus the USD and traded at 1.3340. Yesterday the Standard & Poor’s Index declined 0.4 percent and the Dow Jones Index fell 0.3 percent. In the past week Japan’s currency has seen the largest advance among 10 developed currencies but now it declined from a seven high versus the USD before today the Bank of Japan Governor Haruhiko Kuroda is going to speak after the end of a policy meeting. The
market estimated that the Bank of Japan will not expand stimulus measures, while they currently buy 7 trillion JPY of government bonds every month and try to increase inflation to 2 percent in two years. The USD/JPY increased to 96.83 and the EUR/JPY was at 129.12. Investors forecasted that today a report will show the unemployment rate in Australia rose to a four year high to 5.8 percent in July, from 5.7 percent in the previous month. Beyond that a China report, which is Australia’s biggest trading partner, might show that imports advanced for the first time in three months. The AUD/USD was at 0.8987 and the AUD/JPY touched 86.95.
The NZD/USD declined to 0.7942.

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According to data Greeks unemployment rate hit another record high in May of 27.6 percent, last year in May in was at 23.8 percent. Greece is the sixth year in recession, and has seen a 25 percent drop in output since 2007. Obama advised the Greek government to take steps to reduce its debt pile but pointed out to balance austerity with measures to promote growth and boost jobs. Last month Greece received another 6.8 billion euros from the European Union, the IMF and the European Central Bank. Yesterday data showed that Chinese exports increased 5.1 percent from a year earlier and imports rose 10.9 percent. And today economists forecasted that a report will show industrial production strengthened 8.9 percent in the past month compared with a year earlier and retail sales may also have climbed 13.5 percent after a 13.3 percent rose in June. Analysts were pleasantly surprised but warned against being too optimistic. These data may add to signs of stabilization in the Asian economy and lead to an increasing demand for higher yielding assets. As a consequence the USD declined versus its major counterparts and was close to a seven week low against the EUR. The EUR/USD traded at 1.3376 and the USD/JPY was at 96.86. Yesterday the Dow Jones Index climbed 0.2% and the Standard & Poor’s Index rose 0.4
percent. Next week Euro-area gross domestic product will be announced and the market expects a rose of 0.2 percent in the second quarter. Today the Australian Central Bank is going to update its outlook on growth and inflation while the AUD headed for its largest weekly rally in more than a year. The AUD/USD was nearly unchanged at 0.9102 and the AUD/JPY 87.99. The NZD/USD was at 0.7995.

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The increase of Japan’s gross domestic product remained below economists’ expectations and was at 2.6 percent annualized in the second quarter, while median estimates predicted a growth of 3.6 percent. This might confirm the concerns that the nation’s economy weakened due to investment cuts by the enterprises undermining surplus’ in consumer and government spending, which are helping to raise the inflation. These current developments of the business might strengthen the position of Prime Minister Abe’s opposition, which is trying to stop the planned increase of the sales tax by 3 percent in April and should be decided in the next months. An additional survey of corporate goods prices published today by the BOJ forecasted a rise of 2.2percent, the most since August 2011.Also the debate about a potential reduction of the monetary stimulus by Federal Reserve received new momentum as the Dollar Index succeeded to climb the second day in a row, before a report might confirm that retail sales climbed 0.3 percent for the fourth consecutive month following a 0.4 percent win in June. The Commerce Department will publish their data tomorrow. The Dollar Index showed the tracking of six currency counterparts versus the USD and appreciated 0.2 percent to 81.259 from Friday as it already gained 0.2 percent. Meanwhile, the USD advanced 0.4 percent against the JPY and was at 96.60 JPY, after having fallen to 95.81 on Friday, the weakest since the 19 of June. The EUR/USD declined 0.1 percent to 1.3324 USD and the 17 nation’s currency added 0.2 percent to 128.70 JPY by touching 127.98, the lowest since the 27 of June.

According to a gauge of Bloomberg economists, tomorrow’s report might show that the industrial output in the European area rallied 0.9 percent in June compared to the previous month with a 0.3 percent drop.