Morning Forex Fundamental

EUR

'Further weakness [in the retail sector] looks likely during the third quarter' - Markit

Eurozone retail sector expands 0.1%

Impact high

The Eurozone retail sector growth slowed in June as consumers cut spending amid the economic slump. Sales rose 0.1 per cent, after adding 0.8 per cent in May, said the European Union’s statistics office on Friday.

'Further weakness looks likely during the third quarter. Italian retailers were at their most pessimistic regarding the short-term sales outlook since the survey started in 2004, while sentiment in France was the second-worst on record.

Correspondingly, the value of new purchases by retailers across the Eurozone continued to fall at a near-record rate,' said Markit financial information services company after the release of PMI July 30.

The Stoxx Europe 600 Index gained 2.43 per cent to 265.58. Germany’s DAX Index added 3.93 per cent and France’s CAC 40 Index rose 4.38 per cent.

USD

'We’re stuck in a channel of lackluster growth' - Brian Jones, a senior U.S. economist for Societe Generale SA

Nonfarm payrolls rise more than forecast; service sector expands

Impact High

The U.S. economy created more jobs than economists forecast in July, easing concerns the economic recovery is faltering. Total nonfarm payrolls increased by 163,000, said the U.S. Department of Labor on Friday. The jobless rate rose to 8.3 per cent, the highest level since February.

'Today’s numbers are better but not good enough,' said Brian Jones, a senior U.S. economist for Societe Generale SA in New York. 'We’re stuck in a channel of lackluster growth.'

Also Friday, a report showed the U.S. service sector expanded at a faster pace in July, compared to June. The Institute for Supply Management’s non-manufacturing index climbed to 52.6 from 52.1, said Arizona-based group.

The Standard & Poor's 500 gained 1.90% to 1,390.99. The Dow Jones Industrial Average improved 1.69%, or 217.29 points, to 13,096.17. The Nasdaq Composite added 2.00% to 2,967.90.

GBP

'They [the figures] are weaker than what we would like to have seen... it's indicative of the fact that the economy is very definitely losing momentum' - Peter Dixon, economist at Commerzbank

U.K. service sector growth slows

Impact High

U.K. service sector output only grew slightly in July from the prior month, according to a Markit survey. The Markit/Cips services purchasing managers' index (PMI) fell to 51 from 51.3 in June, said the company on Friday. Reading above 50.0 indicates industry expansion.

'They [the figures] are weaker than what we would like to have seen... it's indicative of the fact that the economy is very definitely losing momentum,' said Commerzbank economist Peter Dixon.

'We're still above 50, that's a positive, but it's not really boding terribly well at this stage for the start of Q3, given what we've already seen from the manufacturing side.'

The FTSE 100 Index added 2.21 per cent, or 124.98 points to 5,787.28. The broader FTSE All-Share Index gained 2.16 per cent

CHF

'In the current environment, the world is flying only on one engine and this engine is the U.S. economy' - Didier Duret, chief investment officer at ABN Amro Private Banking

Swiss stocks closed in green on Friday

Impact: Medium

Swiss stocks rose on Friday after a report showed the U.S. economy added more jobs more than economists forecast.

The Swiss blue-chip index SMI, a measure of the largest and most actively traded companies, added 0.85%, or 54.24 points, to 6,461.54. The broader Swiss Performance Index rose 0.88%, or 51.99 points, to 5,962.98.

'In the current environment, the world is flying only on one engine and this engine is the U.S. economy,' said Didier Duret, chief investment officer at ABN Amro Private Banking.

'That’s why it is so important to look at these numbers coming out from the U.S.,' he added.

JPY

'Investors in the Japanese market care more about the U.S. economy than European issues' - Yoshihisa Okamoto, a fund manager at Mizuho Asset Management Co.

Japanese stocks rose on Monday

Impact: Medium

Japanese stocks edged higher on Monday after better than expected U.S. nonfarm payrolls eased concerns the world’s largest economy is slowing.

The Nikkei 225 Stock Average rose 2.00 per cent, or 171.18 points, to 8,726.29. The broader Topix Index improved 1.63 per cent, or 11.79, to 735.73.

The jobs data 'was quite good and is fueling investor confidence,' said Yoshihisa Okamoto, a fund manager at Mizuho Asset Management Co. in Tokyo.

'Investors in the Japanese market care more about the U.S. economy than European issues.'

Press Review

Europe

The European Central Bank said they may 'undertake outright market operations', as soon as European governments will activate the region’s rescue funds to buy government bonds. The ECB kept its key lending rate at 0.75%.

Spanish and Italian bonds jumped, pushing Spain’s benchmark 10-year yield down to 6.82%, and Italy’s 10-year debt yields to 6.06%.

Monti of Italy Warns That Currency Crisis Risks Europe’s Future

http://www.bloomberg.com/news/2012-08-05/monti-warns-germany-that-euro-crisis-threatens-europe-s-future.html

Disagreements within the 17-nation euro area are undermining the future of the European Union, said Italy’s Prime Minister Mario Monti as the stand-off on European Central Bank support for Italian and Spanish debt hardened.

Draghi stalked by the ghost of Bundesbank past

http://www.marketwatch.com/story/draghi-stalked-by-the-ghost-of-bundesbank-past-2012-08-06?dist=lbeforebell

The ECB boss will have to shake off, too, the legacy of previous tussles with the German Bundesbank. As the events of the past 10 days have shown, these memories are now returning. Forget Charles Dickens and 'the ghost of Christmas past.'

USA

The U.S. July jobs data came in better-than-expected; nonfarm payrolls rose to 163,000 in July, from 64,000 in June. In the meantime, the unemployment rate rose to 8.3 per cent in July, from the previous 8.2 per cent in June. Additionally, treasury yields hit record lows of 1.379% on 10-year notes and 0.535% on 5-year notes.

The Fed claimed its ready to act and introduce another quantitative easing if the economy does not start to recover.

Investors have said it all: U.S. is still AAA to us

http://buzz.money.cnn.com/2012/08/05/aaa-downgrade-treasuries/?iid=SF_E_Lead

The United States lost its pristine AAA credit rating a year ago today, but you wouldn't know it by looking at the Treasury market. Yields on U.S. government debt across all maturities have hit record lows in the post-AAA world as investors' enthusiasm for Treasuries intensified amid a tepid U.S. economic recovery, a growing European debt crisis and slowing growth in emerging markets, particularly China.

What Some Investors Are Doing to Anticipate a Tax Increase

http://www.cnbc.com/id/48502358

One thing is certain this fall: there will be a lot of talk about taxes. But without a broad agreement, a series of automatic increases will take effect next year. What are investors to do?

Asia & Pacific

The Chinese top officials work on a new set of measures to address the slowdown in the economy and sustain macroeconomic growth. Previously, the People’s Bank of China cut the benchmark interest rate by 0.31%.

China is suffering a major economic slowdown, as growth flags in the country's real estate, construction, steel, and other sectors. As a part of fiscal opening policy, China will allow direct Yen-Yuan trades.

Concern increases over local stimulus

http://europe.chinadaily.com.cn/business/2012-08/06/content_15645774.htm

Private investment must have dominant position, expert saysMajor stimulus plans, announced by local governments, have sparked worries over rising debt and poor returns on investment.

Indonesia's economy: Domestic demand boosts expansion

http://www.bbc.co.uk/news/business-19144786

Indonesia's economy grew more than expected in the second quarter as domestic consumption helped offset a decline in demand for exports. In the three months, the economy expanded by 6.4% from a year earlier. Analysts had expected growth of 6.1%.