Daily Economic Outlook

[Samirofi]

Global Sentiment Levitation To Start the Week

Risk appetite has gotten a boost this morning, with optimistic buying patterns emerging throughout the Asian and European sessions which has global equities off to a positive start for the new trading week. While Germany would like to think their 1-nil victory over Argentina to take their fourth World Cup was the catalyst to drive the Euro higher this morning, it has more to do with tightening of spreads between Portuguese and German debt as the worries of contagion due to the Banco Espirito Santo continue to fade. A new CEO and executive team along with assurances from Portugal’s prime minister that taxpayers would not be called upon to bail out failing banks, has calmed participants worries, and lead to positive price action so far this morning. The FTSE, Dax, and Stoxx are all well in the green midway through their session, while EURUSD remains well-bid above the 1.3600 handle. The one thing that could cap any further EUR exuberance is the fact that Mario Draghi is speaking later today at the European Parliament’s Economic and Monetary Affairs committee at 13:30 EST, and may likely try and talk down the common-currency by referencing its resilience and the negative consequences on dis-inflationary pressures within the zone.


The North American economic calendar is light today, but central bank policy makers take center stage later in the week with Janet Yellen testifying before Congress on Tuesday and the Bank of Canada meeting on Wednesday. The USD’s performance has been less than inspiring after the minutes of the last FOMC meeting were released, though Yellen’s remarks at the semi annual congressional testimony will give market participants another crack at deciphering hints at the future path of monetary policy. With the hawkish undertones from regional presidents remaining in the minority on the FOMC it is likely Yellen continues to sound dovish and telegraph the Fed could accept more inflation in order to hit it’s employment mandate – though this argument is getting tougher to defend with the unemployment rate creeping ever closer to their target. The big dollar is firmer against the Yen this morning, heading into the mid-101s as US yields find some support and the Nikkei adds 0.88% to its valuation.


There is a slight residual hangover from the weak employment numbers experienced on Friday that are weighing down the Loonie this morning, though soft price action in the commodity space with WTI closing in $100/barrel and Gold is down almost $20/ounce isn’t helping matters for the commodity-linked currency either. The highlight of the week for Loonie traders will be the Bank of Canada interest rate meeting on Wednesday, and while some had been expecting the BoC to sound a little more hawkish than the have in the past as the downside risks to inflation have eased, the employment numbers on Friday will likely have the BoC keep their balanced tone and reiterate there is more slack in the labour market that will need to be worked out before the central bank can contemplate tightening lending conditions.

[Samirofi]

EUR/USD Fundamentals

• 7:00 French Flash Manufacturing PMI. Estimate 48.5 points, actual 47.6 points.
• 7:00 French Flash Services PMI. Estimate 48.9 points, actual 50.4 points.
• 7:00 Spanish Unemployment Rate. Estimate 25.9%, actual 24.5%.
• 7:30 German Flash Manufacturing PMI. Estimate 52.2 points, actual 52.9 points.
• 7:30 German Flash Services PMI. Estimate 54.7 points, actual 56.6 points.
• 8:00 Eurozone Flash Manufacturing PMI. Estimate 52.0 points, actual 51.9 points.
• 8:00 Eurozone Flash Services PMI. Estimate 52.7 points, actual 54.4 points.
• 8:00 Eurozone Italian Retail Sales. Estimate 0.4%, actual -0.7%.
• 12:30 US Unemployment Claims. Estimate 310K.
• 13:45 US Flash Manufacturing PMI. Estimate 57.5 points.
• 14:00 US New Home Sales. Estimate 485K.
• 14:30 US Natural Gas Storage. Estimate 95B.

*All times are GMT.


For more events and lines, see the Euro to dollar forecast.


EUR/USD Sentiment

• Euro PMIs positive: Eurozone PMIs were released on Thursday, and the news was generally encouraging. German Services and Manufacturing PMIs improved in June and beat their estimates. Services PMI was particularly impressive, hitting a three-year high, at 56.6 points. In the Eurozone, Services PMI easily beat the estimate, while Manufacturing PMI met expectations. In France, however, the PMI data failed to keep pace with its European counterparts. Manufacturing PMI came in below the 50-point level for a second straight month, which points to contraction in the manufacturing sector. Services PMI pushed above 50 for the first time since March, indicating expansion.

• US inflation numbers unimpressive: US numbers were a mix on Tuesday. Inflation numbers continue to struggle, as Core CPI posted a paltry gain of 0.1%, shy of the estimate of 0.2%. The key index has looked anemic in 2014, with its highest gain this year at just 0.3%. CPI was a bit stronger, as it gained 0.3% last month, matching the forecast. Meanwhile, Existing Home Sales jumped to 5.04 million, surpassing the estimate of 4.94 million. This was the best showing we’ve seen since October, and follows a disappointing release from Housing Starts, which was published last week.

• Fed hints rate hike likely in 2015: Federal Reserve Chair Janet Yellen concluded two days of testimony on Capitol Hill last week. Yellen declined to directly answer questions about when the Fed would begin to raise rates, but she did acknowledge that most economists expect the Fed to make a move in the third quarter of 2015. The note about “stretched valuations” in some sectors of the equity markets caught investors’ attention and could serve as a hint that the Fed is set to tighten sooner. The dollar eventually reacted positively.

• Ukraine tensions weigh on euro: Geopolitical tensions are bad news for the markets, which crave stability. With violence continuing in Ukraine nervous investors have rallied around the safe-haven US dollar at the expense of other currencies, including the euro. Last week’s downing of a Malaysian Airlines jet, apparently by pro-Russian separatists, has seriously frayed relations between the West and Russia, which have already been strained since the latter annexed Crimea. Meanwhile, fighting continues between the separatists and Ukrainian forces in Eastern Ukraine. The Europeans are threatening stronger sanctions against Russia, and escalating tensions are weighing on the euro.

[Samirofi]

GBP/USD: Trading the British Preliminary GDP

British Preliminary Gross Domestic Product (GDP) is a key release and is published each quarter. GDP measures production and growth of the economy, and is considered by analysts as one the most important indicators of economic activity. A reading which is better than the market forecast is bullish for the pound.

Here are all the details, and 5 possible outcomes for GBP/USD.

Published on Friday at 8:30 GMT.

Indicator Background

British Preliminary GDP is a key economic indicator, and provides an excellent indication of the health and direction of the British economy. Traders should pay close attention to the GDP release, as an unexpected reading could affect the direction of GBP/USD.

GDP has been steady, with the indicator posting a healthy gain of 0.8% in Q1. This was just shy of the estimate of 0.9%. The estimate for Q2 is unchanged, at 0.8%? Will GDP follow suit with a strong reading?

Sentiments and levels

Despite slight losses last week, the pound remains at high levels. However, solid British inflation and employment numbers failed to push the pound higher. Traders should keep a close eye on British Retail Sales and GDP, both of which are market-movers. US numbers were a mix last week, but market sentiment remains high regarding the US economy, and talk of an interest rate hike will only intensify as QE should be wound up in October. So, the overall sentiment is neutral on GBP/USD towards this release.

Technical levels, from top to bottom: 1.7375, 1.7180, 1.7108, 1.6989, 1.6823, and 1.6684.

5 Scenarios

Within expectations: 0.6% to 1.0%. In such a scenario, GBP/USD is likely to rise within range, with a small chance of breaking higher.
Above expectations: 1.1% to 1.5%: An unexpected higher reading can push the pair above one resistance line.
Well above expectations: Above 1.5%: An surge in the reading would likely help the pound, and the pair could break a second line of resistance as a result.
Below expectations: 0.2% to 0.6%: In this scenario, GBP/USD could drop below one support level.
Well below expectations: Below 0.2%. A very weak reading could hurt the pound, and the pair could fall below a second level of support.

[Samirofi]

EUR/USD July 30 – Euro Slips Below 1.34 Ahead of US GDP, Nonfarm Payrolls

EUR/USD continues to lose ground on Wednesday, as EUR/USD trades at the 1.34 line in the European session. On the release front, it’s a busy day, with a triplet of key events in the US - Advance GDP, ADP Nonfarm Payrolls and the Federal Reserve Policy Statement. In the Eurozone, Spanish GDP met expectations, posting a healthy 0.6% gain. However, Spanish CPI softened in June, with a 0.3% decline. Late in the day, Germany releases Preliminary CPI, a key indicator and market-mover.


EUR/USD Fundamentals

• All Day - German Preliminary CPI. Estimate 0.2%.
• 7:00 Spanish Flash CPI. Estimate +0.2%, actual -0.3%.
• 7:00 Spanish Flash GDP. Estimate 0.5%, actual 0.6%.
• Tentative – Italian 10-year Bond Auction.
• 12:15 US ADP Nonfarm Employment Change. Estimate 234K.
• 12:30 US Advance GDP. Estimate 3.1%.
• 12:30 US Advance GDP Price Index. Estimate 1.8%.
• 14:30 US Crude Oil Inventories. Estimate -0.5M.
• 18:00 US FOMC Policy Statement.
• 18:00 US Federal Funds Rate. <0.25%.

EUR/USD Sentiment

• US consumer confidence soars: CB Consumer Confidence was outstanding on Tuesday, pointing to a sharp increase in June. The key indicator jumped to 90.9 points, crushing the estimate of 85.5 points. This was the indicator’s highest level since September 2007. Consumer confidence is closely tracked by analysts since a confident consumer is likely to increase consumption, which is critical for economic growth.
• Markets eye US triplet: Investors have started the week on the sidelines, waiting for Wednesday’s triplet market-moving events. These include the FOMC policy statement, US GDP and ADP Non-Farm Payrolls. The forecast calls for an excellent GDP but soft NFP. German CPI will also be released on Wednesday, and the key index could have a major impact on the movement of EUR/USD.
• Spanish data improves: Most Western countries wouldn’t brag about an unemployment rate around 25%, but the Spanish unemployment rate of 24.5% in Q2 was its lowest level in two years, and beat the estimate of 25.9%. There was more good news on Tuesday, as GDP posted a healthy gain of 0.6%, edging above the estimate of 0.5%. The Bank of Spain has raised its economic forecast for 2014 and 2015, acknowledging a stronger Spanish economy.
• Geo-politics concerns continue: The tensions about the downing of MH17 are rising, as fighting continues in eastern Ukraine between pro-Russian separatists and Ukrainian forces. The EU is preparing to impose tough sanctions against Russia, which could be met with counter-sanctions and weigh on the EZ recovery. In the Middle East, the war in Gaza intensifies with more casualties on both sides as numerous ceasefires have been brokered and broken. Riots have also spread to the West Bank.
• Mixed German data: Soft German data continues to worry the markets. The weak business confidence data from IFO contradicts the upbeat purchasing managers’ indices coming from the euro-zone’s powerhouse. On Tuesday, German Import Prices posted a gain of 0.2%, which was the best showing in 2014. On the inflation front, Germany has not been immune to Eurozone inflation woes, and we’ll get a look at German Preliminary CPI on Wednesday, with the markets anticipating a weak gain. In general, it seems that Germany cannot carry the euro-zone on its own, and a struggling German economy does not bode well for the shaky euro.

[Samirofi]

EUR/USD Sentiment

• US Services PMI jumps: On Tuesday, ISM Non-manufacturing PMI looked sharp, rising to 58.7 points last month. This easily beat the estimate of 56.6, and was the index’s best showing since February 2011. This follows a strong Manufacturing PMI reading last week, with the index climbing to 57.1 points, a three-year high. There was more positive news on Tuesday, as Factory Orders had an impressive July, gaining 1.1%. These solid numbers point to healthy expansion in the US manufacturing and services sectors, helping the US dollar post inroads against the euro.
• German Factory Orders plunges: German manufacturing data was terrible on Wednesday, as Factory Orders fell by 3.2%. This was the strongest decline since October 2012. Despite concern about the health of the German economy, the euro-zone locomotive enjoys a strong job market that already triggers calls for wage hikes, even from the Bundesbank. Such a rise would push euro-zone core inflation higher.
• Fear returns: While the situation in Portugal’s BES was quickly contained and poses no systemic risk, it goes to show that things can pop out of the blue and get out of control very quickly. This casts a doubt on how much the ECB’s stress tests can be reliable and prevent a crash.
• Low inflation puts pressure on the ECB: Inflation in the euro-zone scratches the bottom, with 0.4% y/y in July. Core inflation is at 0.8%. Despite a weaker euro, prices are not rising in the euro-zone. Will Draghi respond to this? The wide measures introduced in June are still fresh, so action is unlikely, but Draghi could certainly try to talk down the euro to even lower levels.
• US inflation levels remain subdued: Both the Fed favorite Core PCE Price Index as well as Average Hourly Earnings remained low, indicating the Americans don’t have too much money in the their pockets so raising rates to curb demand is not that urgent. The latest FOMC statement did acknowledge that inflation could be closer to target, but expressed concern about the “underutilized” job market.

[Samirofi]

Pound Catches a Cold on Sluggish Wage Growth

Although geopolitical anxiety is still festering in the background, financial markets have focused their attention on fundamental economic drivers this morning, with a dearth of data to parse through as we hit the midway point of the week. The much anticipated second quarter GDP numbers for the Japanese economy were released overnight, and you could almost hear a collective sigh from Prime Minister Abe and the rest of his government when the figures came in just slightly better than economists had forecast. The modestly better than anticipated number was still an annualized contraction of 6.8% as the tax hike in April severed personal consumption which lead to private demand dropping by 5.0% over the quarter, though capital expenditures and external demand held up modestly better than forecast, helping the final GDP number narrowly miss the 7.1% decline that had been expected. The substantial drawdown for growth in the real economy over the second quarter has more or less been priced in given the tax hike, with attention now turning to how the economy recovers in the penultimate quarter to assess whether the BoJ may have to look at more accommodative monetary policy measures to combat a downturn in demand from lagging effects of the sales tax hike. Supportive comments from the economy minister and the narrow beat helped the Nikkei keep afloat, with the equity index posting a gain of 0.35% as USDJPY levitated off of the low-102s.


While a fairly significant contraction in the Japanese economy had been expected, what was unexpected was the dovish sounding Bank of England Governor across the pond, as Mr. Carney addressed the media to speak to the BoE’s quarterly inflation report. Although the head of the BoE did mention economic slack was estimated to be running at only 1% of overall GDP, the cut in the forecast of wage growth to increase by only 1.25% in 2014 (from the originally projected 2.5%), illustrated the current slack in the labour market would take longer to absorb than the central bank had anticipated. This assessment of stubbornly low wage growth comes on the heels of June’s employment numbers, which even with the jobless rate falling to 6.4%, still saw wage growth contract by 0.2% over the month. With Carney and the BoE telegraphing a more cautious approach to monetary policy than a few months ago, traders and investors has scaled back expectations that rate hikes are just around the corner, with the 10-year Gilt sliding to 2.46% and the GBPUSD cratering into low 1.67s after a 0.5% drop, the pair’s lowest level since early June.


As we head into the North American open, S&P futures have taken a bit of hit and are off the overnight highs seen earlier in the session after Retail Sales for the month of July for the American economy missed expectations and were flat over the month. When you strip out the more volatile items such as gas and autos there was a 0.1% increase over the month, in addition to June’s number being revised higher from 0.5% to 0.6%; yet the prior month’s revisions have done little to hide the disappointment in the headline number, with the big dollar catching an offer tone across the majors, helping the Pound and Yen claw back some of their earlier losses. As exposure to the USD is culled, the Loonie has seen some buying interest that has taken the pair back into the low-1.09s. The economic calendar for Loonie traders is sparse until Friday when Manufacturing Sales hit the wires, with a strong number giving bulls a chance to see if they can convincingly take back the 1.08s.

[Samirofi]

3 Takeaways from Silver Wheaton’s Earnings Report


Silver Wheaton (SLW) recently released its second quarter earnings report. The company fell short of reaching its quarterly goals at its earnings per share reached 18 cents, while the market estimates were at 20 cents a share. Moreover, the company’s attributed production, profit margins and net sales fell again. But this company could still reach its annual targets on account of expected increase in Sudbury mine. Let’s examine the recent quarterly results and provide three takeaways from them.


1. Attribution production fell but is expected to pick up


The company didn’t reach its quarterly goals in terms of attribution production and there were sharp falls in the 777 and Sudbury projects. Nonetheless, Vale (VALE) the mining company that operates Sudbury estimates a rise in this mine’s production in the coming quarters, which will more offset the drop in output in the past quarter.


In the past quarter, the attributed production in gold dropped by 13.8%, year over year. Its silver attributed output also slipped by 1.5%. The total output dropped by 2.9%.


Disclaimer:The author holds no positions in stocks mentioned and does not plan to initiate positions within 120 hours of the posting of this article. This article is to be used for educational, research and informational purposes only and does not constitute investment advice. There are no guarantees, expressed or implied, of future positive returns in regards to the subject matter contained herein. Understand the risks inherent in investing before making the decision to invest or consult an investment professional for more information. Reasonable due diligence has been performed in regards to the information in this article. However, the author expressly disclaims any liability for accidental omissions of information or errors in fact.

[Samirofi]

Canadian wholesale sales rise 0.6%, slightly better than expected

Canada’s wholesale sales rise 0.6% in June, slightly better than expected. In addition, the previous number was revised up to 2.3%. Canadian wholesale sales were expected to rise by 0.4% in June after 2.2% in May. While this is a relatively late figure, it usually has a lot of impact on the loonie.


USD/CAD traded around 1.0950 just before the publication. The better than expected number pushes Dollar/CAD lower, helping it gain some distance from the dreaded 1.10 line.– more coming


The Canadian dollar bowed before the strength of the US dollar. The latter has been rallying across the board. The gains that the C$ made towards after the corrected jobs data were erased.


The 1.10 level is critical for the pair. Upon breaking below the round number, the pair went further below and hasn’t breached this level for a long time.

[Samirofi]

Market Movers Episode #13: September’s big market movers from the US, Europe and others, and one rule of thumb

In this episode, we preview the big events that are expected to rock markets in September: Non-Farm Payrolls, the Fed decision, the highly anticipated ECB drama and quite a few other releases that move currencies and commodities. The episode begins with a quick rule of thumb about money management that is always relevant.
Welcome to a new episode of Market Movers, presented by Lior Cohen of Trading NRG and Yohay Elam of Forex Crunch.You are welcome to listen, subscribe and provide feedback.
The topics:

1. Rule of thumb for money management: We start the episode with a catch phrase that everybody likes and break it down to one rule of thumb that is always relevant and for everybody.
2. Path of the US and the US dollar: We discuss what to look for in the jobs report (not only jobs), what related figures could also have a strong impact and what to expect from the FOMC, in the last press conference around a taper decision.
3. What will the ECB do and how will it impact the euro?: After the Jackson Hole drama from Draghi, will the ECB announce QE now? Later? How will the euro react? We discuss the implications.
4. Direction of the BOE: After the pound more than reversed its recent gains, we talk about what events to look out for and what to ignore in September.
5. Other currencies: It’s a busy month also in other places: we explain why dramas could come from Canada and Australia and which central banks are under pressure.

[Samirofi]

EUR/USD Fundamentals

• 18:00 FOMC Meeting Minutes

* All times are GMT.

For more events and lines, see the Euro to dollar forecast.

EUR/USD Sentiment

• Dollar sell-off: After the strong NFP (see below) came the hangover. In an orderly fashion, the dollar was sold off and EUR/USD rose gradually, even temporarily breaking above 1.2660. However, as the chart shows, this has resulted in a higher low.

• German weakness: Both German factory orders and industrial output fell sharply in August. While there is some seasonality here, this “hard data” contrary to the “soft data” coming from PMIs, is certainly worrying.

• FOMC minutes anticipated: The minutes from the latest meeting might be more hawkish than the message we hear from Chair Yellen, given previous releases. This is the big event of the week, due on Wednesday. JOLTS is also closely followed by the Fed and it certainly surprised to the upside