European Outlook: Asian stock markets are mixed, as USD weakens and Yen strength saw the Nikkei wiping out gains. The ASX also was under pressure as the dip in oil prices weighed on energy producers, while Chinese stocks in Hong Kong touched a 2-year high and the Hang Seng outperformed. US100 and U.S. stock futures are in the red, suggesting a weak start in Europe, after modest gains yesterday. Germany’s GER30 re-opens after yesterday’s holiday as Spain’s constitutional crisis continues and casts a shadow over the Eurozone. The data calendar includes the final reading of Eurozone services PMIs, as well as the U.K. services PMI and Eurozone retail sales. Germany sells 10-year Bunds.
FX Update: The dollar remained on the ebb, giving back some of the gains posted recently. The narrow trade-weighted USD index is showing a modest 0.2% loss as the London interbank opens, at 93.23, having extended the decline from yesterday’s six-week peak at 93.77. USDJPY ebbed under 112.50 after recent gains stalled above 113.00, where decent export offers were encountered. The pair left a high at 113.19 yesterday, which is 6 pips short of the near three-month high printed last week. The pair had rallied strongly from the early September low at 107.31, though momentum indicators have been turning lower over the last couple of weeks, despite spot making new highs — a divergence that often portends a trend change. EURUSD logged a two-session high at 1.1780, up from yesterday’s two-and-a-half-month low at 1.1696.
Canada: BoC’s Leduc did not directly address policy in his prepared remarks yesterday on the declining dynamism of Canada’s economy. Data show a “surprising and sustained decline in the entry rate of new firms since the early 1980s” he observed. He said “The main concern about the loss of dynamism is that it will lead to less innovation and diminishing long term growth.” As for Canada’s growth, he said it “has been strong, exceeding that of all other G7 countries.” He does find it “encouraging that the Canadian economy is still flexible enough to absorb a major shock” despite the decline in dynamism. He repeated Poloz’s observation that productivity has “increased significantly” since the middle of last year. There is nothing new here on policy or the economy, with the Lane/Poloz duo last month saying all that needed to be said for now. To review, they revealed a pivot to caution following back to back rate hikes in July and September as the economy surged in the first half of this year. Leduc said the growth rate should decline over next few quarters, but remain above potential. That is in-line with the July outlook and Poloz’s comments last month.
USDCAD turned a bit lower as Canadian yields edged up following BoC Leduc’s speech. The pairing had been idling on either side of 1.2510 since the open, before falling back to intra day lows of 1.2482. With oil prices off the boil this week, and narrowed prospects for a near term BoC rate hike, USDCAD upside appears to be the easier path.
Main Macro Events Today
- EU and German Markit PMI – The Services EU reading is seen at 55.6, and should see the composite confirmed at 56.7, while German Service PMI and Composite anticipated unchanged at 55.6 and 57.8 respectively. The UK Service is seen unchanged as well at 53.2.
- US ADP and ISM Non-Manuf. PMI – The September ADP should climb 125k following Augusts 237k surge. There should be little hurricane effect here given the way the data is tabulated. The services ISM is seen edging up to 55.5 after rising 1.4 points to 55.3 previously.
- ECB – President Draghi is due to speak at the Inauguration of the ECB Visito Center in Frankfurt.
- Fed’s Yellen- The market anxiously awaits Yellen’s comments today,which might be in vain, since she doesn’t take the podium until 15:15 ET, and then it’s merely to deliver opening remarks at a community banking event. That’s not a venue nor a topic for policy insights. Plus, there will be no Q&A. Nothing has changed since the September 19, 20 FOMC to alter the stance regarding the dot plot and the indication of one more hike this year, a stance which Yellen has tacitly approved. In terms of the Fed chair position, should Yellen not be reappointed, it seems to be a battle between Warsh and Powell, with the former’s threat to “shake up” the Fed a worry.
Click here to access the HotForex Economic calendar.
Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE! The next webinar will start in:
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.