Fundamentals and FX Movements, Week September 23 to September 27

Thursday, September 26
The major pieces of news were the “final” revision of U.S. Q2 GDP and the drop in U.S. unemployment claims to 305K, the lowest since 2007. With a 2.5% rise in GDP, growth was weaker than expected. The data showed that growth is driven mostly by investments and inventories, while U.S. personal consumption increases (+1.8%) are weaker than in Switzerland (+2.5%), for example.

click on graph to expand, source Zerohedge

Lower US unemployment figures drove some risk-on currencies lower, namely those that depend more on U.S. capital, e.g. BRL, MXN and AUD. With better U.S data, also gold (-0.9% to 1322$) and silver weakened. Potentially due to the broken 200 Day Moving Average the EUR/CHF did not appreciate despite rather good U.S. data, but fell 0.18% to 1.2278. USD/CHF went slightly up to 0.9106.

Wednesday, September 25:
The major news was that U.S. durable goods orders only slightly increased. The more significant Core Durable Goods Orders fell by -0.1% vs. +1.0% expected. As a consequence, gold (+0.91% to 1335$) and the safe-havens CHF and JPY but also the (“German safe-haven” related) euro appreciated. Commodity currencies got hit again: BRL fell the most, followed by MXN, NZD, NOK and AUD. EUR/USD is approaching new highs and – like always since 2008 – USD/CHF new lows (see why). On Wednesday EUR/CHF fell slightly to 1.2298 and USD/CHF more strongly to 0.9088 (-0.45%).

The bad New Zealand trade balance data was explained by the purchase and import of a drilling platform. Still – provided that Chinese growth remains relatively modest – it is fairly possible that the Kiwi might soon collapse, similar to 2008/2009. The NZD could finally join NOK, AUD and the currencies of the Emerging Markets in the continuing the collapse of the carry trade – especially because the NZ economy is not only driven by China but even more by demand from Australian that is weakening. New Zealand seems to be one of the last countries where consumers are spending – visible in rising imports – while the rest of world – not only Europe but also Emerging Markets and the U.S. – limit expenditures (see Paul Krugman). Fed tapering and the increasing NZ current account deficit could lead to the phenomenon that a carry trade must end in a currency collapse (see more).

Tuesday, September 24:
The Richmond Fed Index dropped unexpectedly from 14 to zero (vs. 12 exp.). The board consumer confidence fell slightly, while the Case Shiller Index continued its strong performance: a 12.4% y/y price increase. The IFO business expectations from Germany improved to 104.2, the best reading for 17 months, but the current situation was weaker. With the mostly bad fundamental data commodities, especially oil prices, weakened once again while stocks remained positive for most of the day, but depreciated in late U.S. trading. Commodity currencies were hit, biggest losers were NZD, NOK and MXN. Thanks to bad U.S. news, gold contradicted the downtrend in commodities and was nearly unchanged. The rather good German data was not enough to let EUR and CHF rise. The dollar appreciated against CHF by 0.20% to 0.9126, while the euro was nearly unchanged vs. CHF.

Monday, September 23:
Merkel was the clear winner of the German elections, but she has no majority. Merkel has the habit of crushing her junior partners politically: the social democrats of the SPD have been weak since their coalition with Merkel in 2005, the liberal FDP since their coalition with Merkel in 2009. Hence, the potential coalition partners, the greens or the SPD might prefer to stay in the opposition or demand big political concessions from Merkel. Therefore, we judge that the Germans will not build a government very quickly; uncertainty may arise and affect markets. As for fundamentals, we observed a returning pattern from summer 2011: good Asian, mixed European and rather bad U.S. data. The Chinese HSBC Manufacturing PMI improved to 51.2 (from 50.1), European Services PMIs rose, but Manufacturing PMIs depreciated. Once again the U.S. Markit Manufacturing PMI strongly contradicted the recently strong ISM values: the Markit PMI value was at 52.8 vs. 54 expected. The US Chicago Fed activity index came in close to contraction. Driven by better Chinese data the whole Asian bloc appreciated: AUD led, then JPY, NOK, NZD, SGD, KRW and CHF. The euro inched down driven by Draghi’s comments that there might be a third Long Term Refinancing Operation. EUR/CHF recovered from an intra-day low of 1.2277 (under the 200-DMA) to 1.2294 (-0.17%), USD/CHF was unchanged around 0.9110. Due to the stronger dollar against EUR and the continuing technical downtrend, gold could not take profit from the better Chinese data as usual. The yellow metal depreciated by -0.53% to 1325$.