Morning Forex Fundamental

EUR

'[Factory orders] show that despite the crisis in the euro area, Germany is growing and benefiting from a revival in international trade' - Klaus Baader, senior economist at Societe Generale SA

German factory orders rise, Hollande defeats Sarkozy in French presidential election

Impact High

German factory orders rose by more than forecast in March, a sign Europe's largest economy is weathering the debt crisis. Order jumped 2.2 per cent in March, after increasing 0.6 per cent in February, said the Economy Ministry in Berlin on Monday.

Today's data are 'a very positive surprise,' said Klaus Baader, senior economist at Societe Generale SA in Hong Kong. 'The numbers show that despite the crisis in the euro area, Germany is growing and benefiting from a revival in international trade.'

François Hollande won the French presidential election on Sunday, defeating Nicolas Sarkozy with more than 51 per cent of the votes.

'Since last week it has been obvious to most people that Hollande would defeat Sarkozy, but what we need to see is how he'll work together with Merkel and what that will mean for the euro zone,' said Alexander Kraemer, a strategist at Commerzbank AG.

'The question will be how any new growth initiatives will be implemented. Will it be spurred by new government spending, being the absolute opposite of austerity measures, or will it be achieved through liberating the labor market.'

USD

'From where we sit right now, we think the economy looks fundamentally stronger' - Marisa Di Natale, an economist at Moody's Analytics in West Chester

U.S. stocks closed mixed on Monday; the economy 'is improving'

Impact High

U.S. stocks closed mixed on Monday after Francois Hollande was elected as a French president and Greek voters turned to anti-bailout parties. The Standard & Poor's 500 gained 0.04%, or 0.48 points, to 1,369.58. The Dow Jones Industrial Average lost 0.23%, or 29.74 points, to 13,008.53.

'There are still many hurdles in Europe,' said Matt McCormick, a fund manager at Bahl & Gaynor Inc. in Cincinnati. 'There are no easy answers and the electorate is rejecting austerity. People will take a renewed focus on Europe and that focus is not positive.'

Experts claim the world's largest economy is still improving despite disappointing non-farm payroll report last week.

'From where we sit right now, we think the economy looks fundamentally stronger,' said Marisa Di Natale, an economist at Moody's Analytics in West Chester, Pennsylvania. 'Surveys of business and consumer confidence are better, the labor market data looks a lot better than it did last year, even some of the housing data looks better.'

GBP

'… the challenging economic backdrop suggests that a significant acceleration in [home] prices or activity is unlikely in the near term' - Robert Gardner, Nationwide's Chief Economist

Nationwide: U.K. house prices edged lower by 0.2% in April

Impact High

U.K. home prices edged lower for a fourth time in five months, Nationwide data showed last week. Price of a typical U.K. house fell by 0.2 per cent to 164,134 pounds from March, when it declined 1.0 per cent.

'Much of the recent softness in measures of housing market activity and house prices is likely to relate to the expiry of the stamp duty holiday in late March,' said Robert Gardner, Nationwide's Chief Economist.

'This provided a temporary boost to house prices in early 2012 as buyers brought forward purchases that would otherwise have taken place later in the year.'

'This effect should fade in the months ahead, and measures such as the Government's NewBuy scheme should provide some support to buyer demand. However, the challenging economic backdrop suggests that a significant acceleration in prices or activity is unlikely in the near term.'

CHF

'Greece is probably going to be ungovernable' - Christian Zogg, a fund manager at LLB Asset Management

Swiss stocks slid on Monday

Impact Medium

Swiss stocks declined on Monday after Greek electorate turned to anti-bailout parties.

The Swiss blue-chip index SMI, a measure of the largest and most actively traded companies, retreated 0.27%, or 16.61 points, to 6,040.18. The broader Swiss Performance Index slid 0.09%, or 5.14 points, to 5,650.34.

'Greece is probably going to be ungovernable,' said Christian Zogg, a fund manager at LLB Asset Management in Vaduz, Liechtenstein.

'If the budget cuts are withdrawn, with neither the left or right side feeling bound to the agreements of the previous government, Greece would be without financial support and would go bankrupt quite quickly. In France, a shift from consolidation to higher debt would have negative consequences for the euro.'

JPY

'There's concern that the European debt problem may get serious' - Toshiyuki Kanayama, a market analyst at Monex Inc.

Japanese stocks tumbled on Monday

Impact: Medium

Japanese stocks tumbled on Monday after presidential elections in France and parliamentary elections in Greece.

The Nikkei 225 sank 2.78%, or 261.11 points, to 9,119.14. The broader Topix retreated 2.62%, or 20.81, to 772.06.

'The situation in Europe is tough,' said Khiem Do, Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management Asia Ltd. 'Very few nations can stand austerity. If the European Monetary Union stays the same, something has to give.'

'There's concern that the European debt problem may get serious,' said Toshiyuki Kanayama, a market analyst at Tokyo-based Monex Inc.

'The U.S. job recovery is getting sluggish, fueling concern that it may have a bad impact on consumer spending and housing markets.'

Press Review

Europe

Last weekend elections in France and Greece showed that anti-bailout political parties are going to rule those countries. This fact might pose a threat to German plan of further austerity measures within the Eurozone.

Experts claim Spain has never been so close to default and Greece, Ireland and Portugal may need additional financial aid.

Traveling ECB brings no new fixes

http://www.washingtonpost.com/business/economy/traveling-ecb-brings-no-new-fixes/2012/05/03/gIQAp2rpzT_story.html

The European Central Bank brought its monthly meeting to the heart of the euro crisis Wednesday, leaving its German headquarters for Spain, a recession-damaged country with 25 percent unemployment.

Euro Near Three-Month Low on Greek Leadership Concern

http://www.bloomberg.com/news/2012-05-07/euro-near-3-month-low-on-greek-leadership-concern.html

The euro traded 0.6 percent from a three-month low as Greece's political leaders meet for a second day in a bid to form a new government, after an election raised questions about the country's membership of the euro bloc.

USA

It is widely agreed that the Fed is unlikely to launch the third round of quantitative easing as the U.S. economy improves.

The International Monetary Fund rose U.S. economic growth forecast to 2.1 from 1.8 per cent in 2012.

Old feud appears to sink Obama's Fed nominees

http://www.reuters.com/article/2012/05/07/us-usa-fed-nominees-idUSBRE8460KD20120507

President Barack Obama's two nominees to the Federal Reserve appear likely to fall victim to a long-running political feud, which would leave the central bank short-handed as it struggles with tough regulatory and monetary policy questions.

Greece, Not Hollande, the Big Worry: Strategist

http://www.cnbc.com/id/47320878

The deficit situation in Greece — not changes that may come about because of France's election of Francois Hollande — is what markets should really be worried about, said Jean-Francois Robin, economic research global head of strategy at Natixis

Asia & Pacific

China is suffering a major economic slowdown, as growth flags in the country's real estate, construction, steel, and other sectors.

Japan has published a shrinking trade surplus in March after a record deficit in January.

Bank of Japan buys record amount of stock ETFs

http://www.marketwatch.com/story/bank-of-japan-buys-record-amount-of-stock-etfs-2012-05-07?link=MW_home_latest_news

The Bank of Japan stepped back into the stock market Monday, making its largest single-day purchase of exchange-traded funds to date, though the move failed to prevent a sharp fall for the Tokyo equity market.

Australian budget set to return to surplus this year

http://www.bbc.co.uk/news/business-17986806

The Australian government is set to end four years of public spending deficits and return to a budget surplus this year, as it looks to shore up support.