Previous Day's Market Highlights
The old traders’ adage of ‘buy dollars, wear diamonds’ rang true once again on Tuesday as the greenback surged to its highest levels against a basket of peers since June 2017, gaining 0.4% over the course of the day. The dollar’s advance was sparked by a number of factors, chiefly the market becoming more optimistic about the state of the US economy after relatively upbeat recent economic data and a slew of better than expected corporate earnings, with the result being markets pricing out seemingly overblown fears of a US economic slowdown. Tuesday’s move was largely as a result of markets capitalising on signs that the US economy is doing better than the rest of the world - resulting in investors flooding to purchase dollars to invest in US equity markets. The US-rest of world divergence, seen in economic data, corporate results, and in interest rates, is likely to see the greenback relatively well supported over the medium-term. Looking to data, Tuesday’s economic numbers were of little significance, despite new home sales reaching their highest level since November 2017.
Elsewhere, the pound struggled for direction, with little in the way of news flow or data to spark volatility. Cable (GBP/USD) did however fall victim to the dollar’s advance, falling 0.4% to the lowest levels since 19 February at $1.2927. Against the euro, the pound was little changed, treading water around familiar levels awaiting impactful Brexit-related news. The single currency did however struggle, closing down by 0.5% after consumer confidence figures unexpectedly fell to their lowest levels since January at -7.9. The fall, combined with the aftermath of Thursday’s disappointing PMI data, weighed on the euro, with the single currency falling to its lowest levels since early-April. The Swiss franc was also weak, losing 0.6% on Tuesday as lower demand for safe-havens weighed, sending the franc to its lowest levels against the dollar in more than 2 years, something likely to please the SNB who desire a weaker franc to support Switzerland’s export dependent economy.
Overnight, the Australian dollar has tumbled by almost 1% after disappointing inflation figures spurred bets on a rate cut at the RBA’s May policy meeting. Prices increased at just 1.3% on a year-on-year basis in the first quarter, according to the CPI measure, while remaining flat on a quarter-on-quarter basis. The RBA’s trimmed mean CPI, their preferred measure, was also lacklustre, showing prices increasing at just 1.6% on a year-on-year basis. The sluggish inflation, combined with an upward trend in unemployment, have increased the chances of a rate cut at the RBA’s next meeting in 2 week’s time to 71%, from 14% yesterday.
Away from FX, global equity markets rallied broadly after better than expected corporate earnings. The pan-European Stoxx 600 added 0.25%, while the US benchmark S&P 500 rallied 0.88%, closing at a fresh record high. Finally, oil prices continued to rally after the US crackdown on Iranian import waivers. Both Brent and WTI rallied more than 1%, reaching fresh 6-month highs.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
Today’s main focus will lie with this afternoon’s Bank of Canada (BoC) rate decision, with unanimous expectations for policy to be kept unchanged, with benchmark rates remaining at 1.75%. Despite the anticipated lack of rate changes, markets will likely be given plenty of food for thought in both the interest rate statement and the quarterly monetary policy report. It is likely that the BoC will shift to a more neutral policy stance, lowering the likelihood of further rate hikes in light of a downbeat outlook for both the Canadian and broader global economy. More specifically, markets will pay increased attention to any comments surrounding both ongoing global trade tensions as well as energy prices, with the latter of particular interest given the Canadian economy’s close links with the oil industry. Any dovish comments, from either the statements or Governor Poloz’s press conference, will likely weigh on the loonie, though markets seem priced for a relatively dovish outcome hence downside moves could be limited.
Elsewhere, data is relatively thin on the ground, with no major releases due from the UK or the US. Public sector net borrowing figures for the UK may attract some attention, though the near-term direction of the pound will continue to be dominated by Brexit-related headlines, with news flow likely to pick up now that Parliament has returned from recess. Meanwhile, in the eurozone, focus will lie with the monthly German business climate survey from IFO, a useful leading indicator of economy health. Expectations are for the index to increase to 99.9 - a level which would be the highest seen this year. Also released will be the ECB’s periodic economic bulletin, outlining the statistical data used by the central bank at their latest policy meeting, though the release typically has little market impact.
In the US, despite the lack of data, markets will look to the latest set of corporate earnings for direction. Highlights include reports from Boeing and Caterpillar before the opening bell, with the latter often being considered a proxy for the broader global economy. After the closing bell, both Microsoft and Facebook will report. Central bank speakers are lacking, with the Fed having entered its pre-meeting blackout period and no speakers due from other major central banks.
Overnight, the Bank of Japan (BoJ) will release their latest monetary policy decision, with rates expected to be kept unchanged at record lows of -0.1%. Of more interest will be the BoJ’s new set of economic forecasts, with expectations that the Bank will forecast CPI inflation below their 2% target for the length of the forecast horizon. Such a move will likely raise further concerns over the BoJ’s limited monetary policy toolbox and ability to stimulate the Japanese economy in the event of a downturn. Governor Kuroda is likely to face questions on this, as well as the potential impact of October’s consumption tax hike, at his post-meeting press conference, though the direction of the yen is likely to continue to be determined by global risk sentiment.
Today's Economic Calendar
|9:00am||EUR||German IFO Business Climate Survey||99.9||99.6|
|9:30am||GBP||Public Sector Net Borrowing||-0.40bln||-0.66bln|
|3:00pm||CAD||BoC Rate Decision & Statement||1.75%||1.75%|
|3:00pm||CAD||BoC Monetary Policy Report|
|3:15pm||CAD||BoC Press Conference|