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Fundemental Analysis 2017.09.19 – ZEW Survey, Japanese Trade Balance
The European day starts off with the ZEW survey. This is a survey of financial analysts and investors, not people actually making or selling things, so it’s more of an investor sentiment gauge than an indicator of the real economy. It’s expected to show a small decline in current conditions – consistent with the expected small decline in the manufacturing PMI later this week – but a rise in expectations as the overall European economy improves. This suggests investors are increasingly optimistic about the outlook for Europe’s biggest economy, which is naturally EUR-positive.

US housing starts are expected to be slightly higher, but building permits are expected to be slightly lower. It seems that the market pays more attention to starts than to permits, which would mean the overall message could be positive for the dollar nonetheless.
In fact, given all the headwinds facing the housing market, the figures are quite encouraging. The National Association of Home Builders (NAHB) has mentioned “lot and labor shortages and rising building material costs” as factors restraining housing starts, while the recent Fed Beige Book mentioned “worker shortages in numerous industries, most notably in manufacturing and construction.” Also, the greater Houston area, accounts for 3.5% of the nation’s housing starts and builders would have prepared for Hurricane Harvey by stopping work ahead of time.

The US current account deficit apparently narrowed in 2Q. However, the forecast would still mean a below-trend figure (below in the sense that in the graph, a wider deficit is below the trend line). The deficit would have to be around -$108bn in order for the 12-month moving average to remain the same. So although the deficit is expected to narrow from the previous month, I would say it’s still USD-negative.

Overnight, Japan’s trade surplus is expected to be significantly lower on a not-seasonally adjusted basis, but to rise significantly on a seasonally adjusted basis, which is the more important metric in my view (although the market watches the NSA version more closely, for historical reasons). The customs trade data for the first 20 days of the month showed exports up 12.7% yoy vs only a 5.5% yoy rise in imports. I expect a continued strong export showing is likely to be positive for the yen, particularly as the Trump administration continues to put pressure on countries that run a surplus with the US.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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