31 / 10 / 2017 | Analisi tecnica

Technical Analysis 31.10.2017 - CAD/CHF: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line is below Kijun-sen, the lines are horizontal . Confirmative line Chikou Span is below the price chart, current cloud is descending. The instrument is trading below Tenkan-sen and Kijun-sen lines; the Bearish trend is still strong. One of the previous minimums of Chikou Span line is expected to be a support level (0.7749). The closest resistance level is Tenkan-sen line (0.7762).



On the daily chart Tenkan-sen line is below Kijun-sen, the blue line is directed downwards, while the red one remains horizontal. Confirmative line Chikou Span is approaching the price chart from below, current cloud is ascending. The instrument is trading around lower border of the cloud. One of the previous minimums of Chikou Span line is expected to be a support level (0.7726). The closest resistance level is the upper border of the cloud (0.7760).



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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31 / 10 / 2017 | Notizie sul mercato

Fundamental Analysis 31.10.2017 - Market Outlook

A fairly quiet day overnight for most currencies. US bond yields moved lower, weakening the dollar somewhat even though EU bond yields moved lower too as a result of lower-than-expected German inflation. Both USD and EUR weakened as a result.

USD was also pressured by two political stories. First, Politico.com ran an article that said Jerome Powell is likely to be chosen for the next Fed Chair, but if it isn’t Jerome Powell, it’s more likely to be Kevin Warsh than John Taylor. The idea that John Taylor may be out of the running sent US interest rates lower. Later, the White House announced that US President Donald Trump would choose the next Fed Chair on Thursday 2nd November 2017. Many people inferred from this that it is indeed likely to be Jerome Powell, since he will be tied up in the FOMC meeting on Tuesday 31st October 2017 and Wednesday 1st November 2017.

Secondly, there was a story out that said the US House of Representatives is considering phasing in a corporate tax cut over five years. That implies the impact on the deficit – and therefore the Treasury market – will be spread out over several years. Bond yields fell as a result while the stock market fell too. That also helped to put downward pressure on the dollar.

GBP strengthened in anticipation of a rate rise and, presumeably, some hawkish comments from the Bank of England when it announces its policy decision on Thursday 2nd November 2017.

JPY strengthened ahead of the Bank of Japan meeting but came off slightly afterwards in a “buy the rumor, sell the fact” response. The results of the meeting were largely as expected:  The BoJ left its yield curve control program and asset purchases untouched and also lowered its inflation forecast (although it left its growth forecasts largely unchanged). I think though that the slightly stronger yen probably has more to do with the narrowing yield gap vs USD than with anything going on in Japan. JPY could strengthen further if US Treasury yields continue to move lower, as seems likely for the time being.

AUD weakened on lower-than-expected private credit growth and China manufacturing PMI. There was also apparently some selling of AUD/NZD as NZD recovered a bit of its recent losses. The bounce in NZD was surprising, given that there was more bad news there too – the government said it would ban non-residents from buying houses, and business confidence fell. I can only presume that the recovery was technical after several days of losses. I think though that with US interest rates headed lower, at least temporarily, and JPY rates still on hold, AUD and NZD could both recover somewhat vs USD and JPY over the next few days.
 

Today’s market

The day starts with the Q3 GDP figures for France and the Eurozone as a whole. EU growth is expected to remain at the same relatively high rate as in the previous quarter, confirming ECB President Draghi’s comments last week about “unabated growth momentum in the second half of this year.” That could prove positive for the euro insofar as it will help convince the ECB that their forecasts are on track.  



At the same time, the EU CPI comes out. Both the headline yoy rate of change and the core yoy rate of change are expected to stay the same, with the headline rate expected to remain at 1.5% yoy – exactly what the ECB is forecasting for the year as a whole.  However, following yesterday’s lower-than-expected inflation figures, there could be some disappointment here. I expect if the pace of inflation doesn’t change, there’s no reason for exchange rates to change either. However, a slowing in inflation so early could prove negative for the euro.



Canada sees its GDP growth slow slightly, at least on a yoy basis. Cool weather dampened demand for electricity, while retail sales were weak as well. Even so, the consensus forecast of +0.1% growth in the month is consistent with Q3 growth in the 2% range, which would be higher than what the Bank of Canada forecast (1.8%) and could boost CAD.



The US Conference Board’s consumer confidence index is expected to remain more or less unchanged in October 2017.



Wednesday 1st November 2017 morning local time, New Zealand announces its employment data. Employment is expected to bounce back after the surprising decline in Q2. As a result, the unemployment rate should decline further, which I expect would be positive for the NZ dollar.



Also overnight, the Caixin/Markit China manufacturing PMI is forecast to be unchanged, in contrast to Tuesday’s official manufacturing PMI, which fell to 51.6 from 52.4 (expected at 52.0). The Caixin/Markit PMI surveys mostly small- and medium-sized firms in the eastern coastal areas, while the official version samples mostly state-owned enterprises (SOEs) that are used as conduits for official stimulus.









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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30 / 10 / 2017 | Notizie sul mercato

Fundamental Analysis 30.10.2017 - Market Outlook

USD started to weaken in late New York trading Friday 27th October 2017 on profit-taking and position closing ahead of the weekend. The move gathered speed in Asia on the morning of Monday 30th October 2017 after Trump said over the weekend that he’s likely to make an announcement about the Fed Chair this week. Expectations that he may choose Fed Gov. Jerome Powell have been weakening the dollar, because Powell would be seen as continuing Janet Yellen’s path of gradual tightening. By contrast, the other main candidate for the position, academic John Taylor, has been a consistent critic of the Fed’s loose policy and could be expected to press for a faster pace of tightening.

There has been speculation that perhaps Trump will appoint one to the Chair and the other to the Vice Chair position, a compromise that might work out well – and might boost the dollar, in my view. However, Treasury Secretary Mnuchin said the administration was focused only on the Chair appointment, not the Vice Chair. That rules out the dual appointment at least for now.

Also, it was revealed on Friday 30th October 2017 that a federal grand jury has approved the first criminal charges in special counsel Robert Mueller’s investigation of Trump presidential campaign and its ties to Russia. The indictments are sealed, meaning neither the specific charges nor the person or persons being charged aren’t known yet. Reports say that arrests could be made as early as today. The political implications could potentially be big depending on who is involved.

Over the weekend, the Spanish government began to take over Catalonia’s regional administration, starting with installing a new Chief of Police. Meanwhile, there was a report that the ECB’s Governing Council expects to end its bond purchases by the end of 2018 but not begin raising rates until Q3 2019, and even then to start with only a 15 bps move. I think the recent rally in EUR may be over for the time being.

NZD continued to feel the impact of the change in government and the new Labour government’s commitment to changing the Reserve Bank of New Zealand’s (RBNZ) mandate. Finance Minister Grant Robertson said over the weekend that reducing unemployment is a key goal of the new government and added, “we want to make sure that the objectives of the RBNZ reflect our overall view of the economy.” “Potentially” that could mean lower interest rates, he said. 

The odd thing is, the money market hasn’t yet started repricing the likely course of RBNZ policy. As the graph shows, the market is still showing the same expected pace of tightening as it was before the election. In my view, NZD may be embarking on a sustained downtrend as people reevaluate the likely course of RBNZ policy. 

The rise in AUD was probably a reflection of people selling NZD against it more than anything domestic in Australia. CAD gained as oil prices surged on optimism that OPEC may extend its agreement to restrain output. 

Today’s market

Aside from a possible announcement by special council Mueller, the biggest thing on today’s schedule is the Bank of Japan meeting overnight. I don’t expect it to be particularly market-affecting – probably they’ll just make some minor adjustments in their forecasts.

It’s a big day for inflation figures. First in Europe we get German inflation for October 2017. As usual, the day starts with the region of Saxony. There’s no forecast, but watch the figure anyway – 80% of the time the two annual rates of change move in the same direction. The year-on-year rate of change in nationwide prices is expected to slow slightly.



UK mortgage approvals are expected to fall somewhat, another sign of the gradual downturn in UK housing. The 0.9% decline forecast for this Bank of England series is more than double the 0.4% mom fall from the UK Finance series. Since there’s about an 80% correlation between the two, there could be an upside surprise here.



Later in the day we get the US personal income and spending data, and with them the personal consumption expenditure (PCE) deflators. Both income and spending are expected to rise. Spending was apparently boosted by the hurricanes, which unfortunately destroyed a lot of cars that had to be replaced. The rise could be USD-positive. 



The PCE deflators are important because although all the attention goes on the CPI, in fact the Fed uses the core PCE deflator as its primary inflation gauge. The rate of core inflation is expected to stay the same. The yoy rate of the overall PCE deflator however is expected to accelerate by 0.3 ppt, the same as the CPI did.









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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30 / 10 / 2017 | Analisi tecnica

Technical Analysis 30.10.2017 - EUR/JPY: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line is below Kijun-sen, the red line is directed downwards, while the blue one remains horizontal. Confirmative line Chikou Span is below the price chart, current cloud is descending. The instrument is trading below Tenkan-sen and Kijun-sen lines; the Bearish trend is still strong. One of the previous minimums of Chikou Span line is expected to be a support level (131.450). The closest resistance level is Tenkan-sen line (132.425).



On the daily chart Tenkan-sen line is above Kijun-sen, the lines are horizontal . Confirmative line Chikou Span is below the price chart, current cloud is ascending. The instrument is trading around upper border of the cloud. The closest support level is the upper border of the cloud (131.670). The closest resistance level is Tenkan-sen line (133.043).



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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27 / 10 / 2017 | Notizie sul mercato

Fundamental Analysis 27.10.2017 - Market Outlook

EUR weakness – and its counterpart, USD strength – was the theme overnight in the wake of the European Central Bank (ECB) decision to reduce and extend its monthly bond purchases.

It’s true that they cut the bond purchases to €30bn a month, at the low end of expectations, but the impact of that choice was offset by a number of dovish qualifications, namely:
  • Their target is “net” purchases not “gross” purchases, meaning the reinvestment of maturing bonds isn’t included in the amount that they’ll be buying;
  • They extended the purchases by nine months, the maximum observers expected;
  • They left open the possibility that not only might they extend the purchase program longer, but they could even increase the amount again if it turns out to be necessary; and
  • They pledged to continue reinvesting maturing bonds even after the purchase program ends. This is an important point because reinvestment could be €10bn a month. 

In fact, ECB President Draghi virtually promised that the program was going to be extended further when he said, “…the decision today is for an open-ended program. I may add certainly it's not going to stop suddenly.” He later added, “…this is not tapering; it’s just a downsize.”

Draghi pointed out that the ECB’s forecasts are that inflation is actually likely to slow to 1.2% yoy next year from 1.5% yoy this year and only hit 1.5% yoy in 2019, still below the ECB’s target of “close to, but below, 2%.” “So we aren’t there yet,” he said. And given that the ECB has pledged to continue to keep rates low “well past” the end of the bond purchase program, this means ECB rates are likely to stay lower for longer than the market had expected. Thus EUR weakness.

Meanwhile, the USD’s rebound was boosted when the House of Representatives passed a budget resolution, suggesting further progress on tax reform is possible. Republican leaders said that they hope to have the tax bill introduced, debated and approved in both chambers by the end of November.

Also, news reports have suggested that current Fed Chair Janet Yellen and former Fed Governor Kevin Warsh are no longer in the running for Fed Chair, meaning the decision is down to academic John Taylor and current Fed Gov. Jerome Powell. Taylor is considered the most hawkish of the candidates and so his nomination would be positive for the dollar.

Ten-year Treasury yields are at 2.46% this morning, well above the 2.42% technical level I mentioned yesterday. That suggests US rates may be headed higher, meaning the dollar is likely to get continued support from the “monetary policy divergence” with the euro.

Elsewhere, AUD weakened after the Australian High Court ruled that Deputy Prime Minister Barnaby Joyce has to leave Parliament because of his dual citizenship. This will cost the government its one-seat majority.

Today’s market

The only major indicator on today’s schedule is the first estimate of US third-quarter GDP. The market expects a slowdown in growth. Nonetheless, the forecast rate of 2.6% qoq SAAR is still above the FOMC’s forecast for this year (2.4%) and indeed well above their median estimate of the long-term rate of growth in the US, which is 1.8%. So it would still be enough to allow the Fed to keep hiking rates and could therefore be USD-bullish.



Note though that reliable sources have a wide variety of estimates. The Atlanta Fed’s GDPNow forecast estimates the figure will be 2.5%, close to the market consensus, but the New York Fed’s Nowcast estimate is far lower at 1.5%. If the number came in closer to what the New York Fed expects, I would imagine that US rates would fall and the dollar would weaken.

The other part of the GDP figure is of course the price deflators, especially the core personal consumption expenditure (PCE) deflator, which is the Fed’s preferred inflation target. Both are forecast to move higher.

With growth remaining above the economy’s long-term potential non-inflationary level and inflation rising back towards the Fed’s target level, it should be possible for the Fed to continue with its series of gradual rate hikes. The figures therefore ought to be positive for the dollar, in my view.









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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27 / 10 / 2017 | Analisi tecnica

Technical Analysis 27.10.2017 - EUR/USD: wave analysis and GBP/USD: wave analysis

EUR/USD: Wave Analysis
The trend is downward. On the 4-hour chart the wave A is forming within the downward correction (2) of the higher level. At the moment the fifth wave v of A, within which the third wave of the lower level (iii) of v is developing, is forming. If the assumption is correct, the pair will fall to the levels of 1.1580–1.1470.






GBP/USD: wave analysis
The trend is downward. On the 4-hour chart the wave C is forming within the downward correction (2) of the higher level. Locally the development of the third wave of the lower level iii of С has begun. If the assumption is correct, the pair will fall to the level of 1.2810.





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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26 / 10 / 2017 | Analisi tecnica

Technical Analysis 26.10.2017 - AUD/CAD: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line has crossed Kijun-sen from above, the lines are horizontal . Confirmative line Chikou Span is above the price chart, current cloud has reversed from ascending to descending. The instrument is trading above Tenkan-sen and Kijun-sen lines; the Bullish trend is still strong. One of the previous minimums of Chikou Span line is expected to be a support level (0.9853). The closest resistance level is Tenkan-sen line (0.9871).



On the daily chart Tenkan-sen line has crossed Kijun-sen from below, the blue line is directed downwards, while the red one remains horizontal. Confirmative line Chikou Span is crossing the price chart from above, current cloud is descending. The instrument is trading above Tenkan-sen and Kijun-sen lines; the Bullish trend is still strong. The closest support level is the lower border of the cloud (0.9851). One of the previous maximums of Chikou Span line is expected to be a resistance level (0.9890).



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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26 / 10 / 2017 | Notizie sul mercato

Fundamental Analysis 26.10.2017 - Market Outlook

EUR and USD were little changed. US 10-year Treasury yields did pop over the crucial 2.42% barrier that I mentioned yesterday, but buyers came in and pushed them back down. In the end, the event didn’t impact USD that strongly. Today’s ECB meeting will of course be crucial for EUR/USD. After that, tomorrow’s US Q3 GDP number is the big event for the dollar.

GBP gained as better-than-expected Q3 GDP figures made it more likely that the Bank of England would hike rates at its meeting next week. The odds in the market have increased to 89% from 82% before the figure.

The data coincided with some optimistic words about Brexit, which may also have lifted sentiment towards the pound. Brexit Secretary David Davis said that the UK expects to agree with the EU by early next year on the form of a transition arrangement that would follow Brexit. Crucially, he said that the relationship should be “very close to existing circumstances” during the transition period. This basically amounts to the UK giving in to EU demands. Signs that the UK is capitulating suggests that the impasse may eventually be solved, which would be positive for the UK and the pound.

On the other hand, CAD plunged after the Bank of Canada not only kept rates steady, but issued a more dovish statement than the market had expected. In the press conference afterwards, Bank of Canada Governor Stephen Poloz said that the Bank is “more preoccupied with the downside risks to inflation” and that the Bank would be “cautious in considering future interest rate adjustments.” Unlike what happened in Britain, the odds of a rate hike at the next BoC meeting (12 December 2017) fell to 33% from 44%. I think as the NAFTA talks drag on, CAD is likely to weaken further.

AUD/USD is quickly approaching its 200-day moving average (0.7694). A break of that might trigger the next leg down for the pair.

Today’s market

Today’s a big day for central bank meetings, with Sweden’s Riksbank, Norway’s Norges Bank, and the European Central Bank all holding their meetings today.

The ECB isn’t going to change rates either, however is expected to begin to taper down its bond purchase program. Currently it purchases €60bn of bonds each month in a program that it said will run “until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.”

The two questions are, how much will they now purchase, and when will they stop the buying entirely? It’s hard to estimate what the “market consensus” on these crucial points is. A Reuter poll says the consensus is that the ECB will cut its bond purchases to €40bn a month and extend them from six to nine months past the end-December cut-off. Bloomberg’s survey says investors expect them to be cut in half to €30bn a month and extended for nine months.

With an announcement a virtual certainty, the market’s response depends on how the actual decision compares with expectations. The lower the bond purchases, the more EUR is likely to strengthen, because bond yields should rise more as a result.

Similarly, the longer they extend the program, the more the euro is likely to weaken, or at least the less it’s likely to gain. That’s because a longer extension would mean interest rates will be “lower for longer.” The ECB has pledged not to start raising rates until “well past the horizon of our net asset purchases.” In this vein, the Council may want to leave some flexibility around the cut-off date by saying something like it does now, e.g. “nine months, or beyond, if necessary,” rather than promising to stop purchases at a specific time. A softer ending date rather than a firm cut-off time would also tend to be negative for the euro.

The ultimate response depends on the trade-off between the volume of purchases and the duration. Duration seems to me to be more important, because of the ECB’s pledge not to start hiking rates until after they’ve stopped the purchases. 

At the moment, the market isn’t expecting the ECB to change rates any time soon. The probability of a rate hike by the end of next year, which seemed almost a certainty back in July 2017, has dropped below 50% (green line).



The first rate hike is now priced in for about two years from now. According to a Bloomberg survey, economists see the ECB hiking the deposit rate in 1Q 2019 and the key refinancing, or refi, rate in 2Q 2019.  The deposit rate, currently -0.40%, isn’t expected to get back to zero until four years from now – which certainly qualifies as “well past the horizon.”



There are some other technicalities that the market may pay attention to. For example, when the Council says they will buy a certain amount of bonds, is that “net purchases” – i.e., including the reinvestment of an estimated €15bn a month of maturing bonds --  or “gross purchases” not including them. Gross purchases would mean less purchases overall and would therefore be seen as more hawkish and positive for the euro.

After the ECB drama, the two US advance reports – wholesale inventories and trade – are likely to be rather minor events.

Wholesale inventories are expected to be up slightly, not as much as in recent months but about in line with the six-month average. I think this could be slightly disappointing and therefore be negative for the dollar.



At the same time, the goods trade balance is expected to widen slightly. This would also tend to be negative for the dollar (although to tell the truth, the figure is slightly narrower than the six-month trend and so should be considered good, in my humble opinion – but it probably wouldn’t be.)



So both of these figures would be dollar negative. However, that probably doesn’t matter, because they’ll come out just as ECB President Draghi starts talking, and what he says is much much more important for EUR – and therefore for EUR/USD – than what happens with wholesale inventories.

By the way, if indeed the market is paying attention to these two, the trade balance seems to be the more significant indicator for EUR/USD.

Japan announces its inflation data overnight. They have a ton of different ways of measuring inflation, and all of them show basically the same story:  no inflation after some 20 years of near-zero interest rates.

This time around not only is there no acceleration in inflation forecast, but the core Tokyo CPI is forecast to remain at no annual increase in prices for the third month in a row. Maybe this is better than the previous two months, when prices actually fell year-on-year, but it’s still pretty dismal after something like 20 years of zero interest rates. The yen could weaken on the news, but frankly I don’t think anyone expects the Bank of Japan to do anything more than it already is doing.









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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25 / 10 / 2017 | Analisi tecnica

Technical Analysis 25.10.2017 - AUD/JPY: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line is below Kijun-sen, both lines are directed downwards. Confirmative line Chikou Span is below the price chart, current cloud is descending. The instrument is trading below Tenkan-sen and Kijun-sen lines; the Bearish trend is still strong. One of the previous minimums of Chikou Span line is expected to be a support level (87.642). The closest resistance level is the upper border of the cloud (88.041).



On the daily chart Tenkan-sen line is below Kijun-sen, the red line is directed upwards, while the blue one remains horizontal. Confirmative line Chikou Span is below the price chart, current cloud is ascending. The instrument is trading around upper border of the cloud. The closest support level is the lower border of the cloud (87.482). The closest resistance level is Tenkan-sen line (88.316).


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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25 / 10 / 2017 | Notizie sul mercato

Fundamental Analysis 25.10.2017 - Market Outlook

USD and EUR both gained yesterday. USD apparently has conflicting forces working on it. On the one hand, the announcement that Republican Senator Jeff Flake won’t seek re-election makes it more difficult for the party to pass its tax reform, because he may vote against it. The party can only afford to lose three votes before it becomes unable to pass the legislation and there are already other Republicans who seem likely to vote against it. That’s negative for the dollar.

On the other hand, Trump sounded out Republican Senators about who they’d prefer as Fed chair and found that academic John Taylor is their favored candidate. That’s positive for the dollar and turned out to be the dominant thread in the market today.

All eyes are now on the US Treasury market. The 10-year bond broke through the long-awaited 2.40% level and at the time of writing is trading at 2.4171%. That’s just a whisker away from the 2.42% level last seen back in May that’s apparently an important technical level. Break through that and Treasury yields are expected to go a lot higher, which would tend to be bullish for the dollar. 

EUR gained as the manufacturing purchasing managers’ indices (PMIs) beat expectations. Disappointing service-sector PMIs and the continuing struggle in Spain didn’t hold back the currency. In fact, the spread of Spanish bonds over Bunds actually narrowed slightly and Spanish stocks were higher yesterday, suggesting that the problems there aren’t even disturbing Spain, much less Europe as a whole.

AUD plunged after the Q3 CPI turned out not only lower than expected, but actually showed a fall in the year-on-year headline rate. You can see from the graph below how that pushed out estimates of when the Reserve Bank of Australia (RBA) might start hiking rates.



GBP weakened as Bank of England Deputy Gov. Jon Cunliffe said the timing of the first rate hike is still an “open question.” Many investors have been assuming that the question would be settled at next week’s Bank of England meeting (2 November 2017), when the market sees over an 80% likelihood of a rate hike. Of course, Cunliffe used the exact same phrase last Thursday, so his comment shouldn’t have come as a surprise to anyone.

Watch Brexit Secretary Davis’ comments in Parliament today for a direction on sterling. It’s also Prime Minister’s question time, which may provide a similar opportunity for the government to put some positive spin on the downward spiral of Brexit negotiations. However, at the same time the UK GDP figures may be a drag on the currency (see below).

Today’s market

We’ve got a number of significant indicators out today. First let’s discuss the Bank of Canada meeting, as that’s the main feature. The market had estimated that there was about a 25% chance of a rate hike at this meeting – not great, but not negligible either. Then Friday’s Canadian CPI came out showing a slower-than-expected headline rate of inflation (although an acceleration nonetheless, just a lower-than-expected acceleration). The result was a downgrade of expectations for this meeting and the December meeting as well.



What we can see from the graph is that several times since the global financial crisis, Canadian inflation has been well above the 2% target – indeed, it’s even gone above the 1%-3% target range – without the Bank of Canada raising its overnight rate above 1%, where it currently stands. What that suggests is that the Bank needs to see a strong case for a sustained period of inflation at or near its target in order to make a case to raise rates further.

The Bank has stressed that its decision is would depend on the data, and I’m not sure the data demands an increase any time soon. Last Monday’s Bank of Canada business survey showed that business sentiment, while still positive, fell somewhat in Q3. BoC Gov. Poloz recently singled out this survey as “one of the most important vehicles” that they have for assessing crucial “soft data” about the economy that allows them to pick up hints about future trends before they show up in the data.

Retail sales fell in August 2017, both in volume and in value terms. Moreover, there have been some changes in the rules for mortgages both at the national and regional levels in an effort to cool the housing market. A hike in rates would only exacerbate the expected decline in house prices.

Before the September 2017 Bank of Canada meeting, the market was pretty sure that a rate hike was coming at this meeting. Now, it’s seen as likely at the January 2018 meeting. My feeling is that the Bank may soften its stance somewhat and the market could push the expected date of the next hike out further, thereby weakening the CAD. 



In addition, the Bank’s quarterly Monetary Policy Report, which will be issued at the same time, will be important reading for clues as to their intentions. Gov. Poloz observed recently that this report will contain an updated forecast for growth and inflation. These forecasts, plus Gov. Poloz’ comments on them in the press conference, are probably the key to the medium-term direction of CAD.

As for the indicators, first up is the German Ifo index. This is a domestic version of the purchasing managers’ indices. They’re all expected to decline marginally. This would be similar to yesterday’s small (0.1-point) decline in the German manufacturing PMI for the month. In any event, the business climate and current assessment both hit record highs in July, so some small decline from that level is nothing to be concerned about.



The first estimate of Britain’s Q3 GDP is expected to show growth stagnating at the same pace as in the previous two quarters. UK growth is now the most sluggish of the G10 countries, and the discussions over Brexit aren’t likely to make it any better. Slow growth makes it less likely that the Bank of England can carry out a sustained series of rate hikes.



US durable goods orders are as expected. The headline figure (green dot) will be inflated by some airplane orders; excluding those, the index is forecast to have risen at the same pace as in the previous month (red dot). The figure could be negative for the dollar.



US new home sales are expected to be down slightly in September 2017 following two months of bigger declines. Note though that existing home sales (the purple line) actually rose during the month despite the fact that so many existing homes were destroyed. That leaves open the possibility that new home sales may have risen during the month, too, although the fact is that the monthly change in the two indicators is barely correlated at all – only about half the time do they even move in the same direction (basically random). In any event, I’d expect to see a sharp rebound in these figures once people start rebuilding their houses in Texas and Florida.



Finally, overnight New Zealand announces its trade balance for September. The figures aren’t seasonally adjusted, so the actual number gives relatively little information. The market forecast for a small narrowing in the deficit would also mean a continued narrowing in the 12-month moving average – a good sign for the economy and one that could boost the NZD.









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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