Garo Mavyan | Retail FX & Precious Metals Trader
With the governments of the United States, Mexico and Canada all signing onto the new USMCA (United States-Mexico-Canada) Trade Agreement, it seemed as though President Trump's longstanding promise to redo NAFTA was assured. However, in an unexpected move, Trump once again flared up political tensions between his country and Mexico by threatening to impose a 5% tariff on Mexican imports—with a gradual increase to 25%—if the Mexican government doesn't adequately stop illegal immigration over the US border. Understandably, this surprise announcement has sent destabilizing shockwaves throughout the market. Trump has framed these new tariffs as a border security issue, although they undoubtedly have the potential to negatively impact the economies of all three partner nations in the USMCA.
Yesterday, USDCAD initially dropped from 1.3342 down to 1.3300 as oil prices surged as much as 5%. The move lower was short-lived and the pair climbed back to hold a 1.3316-1.3336 range for the balance of the session. The USD is the best performing currency today and for the week as well. The USD was the worst performing currency last week and the index had fallen to a 3 month low. The index has since moved up to a 1 week high. U.S. retail sales data improved while there was also a positive revision to prior data. U.S. industrial production also showed improvement. After the release of this morning's economic data, the USD broadly gained taking USDCAD from 1.3330 up to a 1 week high of 1.3386. Pull-backs have been limited to 1.3360 thus far. Despite the improved data and USD strength, the U.S. 10 year yield is still holding near 3 year lows suggestive of market expectations for U.S. Fed interest rate cuts. The U.S. Fed will release its policy statement and economic projections next Wednesday.
U.S. equities rose with European stocks, shrugging off losses in Asia as well as a host of simmering geopolitical tensions. Oil surged and Treasuries nudged higher. The S&P Index climbed to a five week high as hope springs of a Federal Reserve rate cut. Plenty of caution remains in the market however, buoying government bonds.
U.S. tech shares slumped as concern about trade tensions blunted optimism that slower-than forecast inflation would allow the Federal Reserve to cut rates. Treasuries climbed and oil fell. Chipmakers were among the worst performers as the S&P 500 Index slumped, with defensive sectors like utilities faring the best. The tech-heavy Nasdaq 100 dropped the most in a week. The Stoxx Europe 600 index headed for its first drop in four sessions, led by oil producers. Just as investor concern over protectionism and global growth seemed to be easing, President Donald Trump's announcement that he is personally delaying a trade deal with China and won't complete the accord unless Beijing returns to terms negotiated earlier this year set in motion a fresh wave of uncertainty. The monthly inflation numbers released Wednesday supported the idea the Fed can cut borrowing costs after the president scowled at "way too high" interest rates. With no assurance that China will meet with the U.S. on the sidelines of the G-20 later this month, trade tensions continue to fuel market uncertainty, yet, the growing probability of Fed cuts is counterbalancing trade concerns. The matter is crucial to global growth.
U.S. equity markets rose Tuesday, boosted by fresh stimulus measures out of China designed to support the world's second-largest economy. The Dow Jones Industrial Average rose 0.5%, the S&P 500 advanced 0.7% and the tech-heavy Nasdaq Composite gained 0.8%. Treasuries dropped as the Markets are still fixated on U.S. – China trade . Meanwhile the Canadian dollar traded in one of its most narrow ranges in history over the past trading session versus the U.S. dollar.
U.S. stocks joined a global rally in equities after President Donald Trump suspended plans for tariffs on Mexico. Sovereign bonds fell across the board, along with gold and the yen, as demand for havens ebbed. The S&P 500 Index advanced for a 5th straight session, led by chipmakers and auto companies. Emerging-market shares headed to their biggest increase since January as Mexico's peso strengthened the most in almost a year after the accord with the U.S. late Friday. The dollar climbed, particularly versus the pound after weak economic data in the U.K. The onshore yuan fell to its weakest level since November after China's central bank governor hinted there was no line in the sand for the currency. Treasuries slumped. U.S. stocks got an additional boost from large takeover deals Monday. But investors were also looking toward the next developments in the U.S.-China trade showdown. Treasury Secretary Steven Mnuchin has said the "main progress" on trade may occur when presidents Trump and Xi Jinping meet at the G-20 summit later this month, while finance chiefs over the weekend warned about escalating risks from geopolitical tensions.
Yesterday, USDCAD initially climbed from 1.3410 up to 1.3430 before falling to hold near 1.3360 (near 6 week lows) for the balance of the session. The USD was broadly weaker on the day as equity markets gained for the 4th consecutive day erasing the entirety of last week's losses. The USD has broadly dropped today on the back of a weaker than expected employment report. The headline drastically missed while there was also a 75,000 negative revision to the prior two months of data. Canada added 27,700 jobs – all of them full-time while the unemployment rate fell to 5.4% - the lowest since 1976. USDCAD has fallen from 1.3364 down to 1.3263 – the lowest in 3 months. The USD index has fallen from near two year highs last week towards 2.5 month lows.
The U.S. trade deficit narrowed in April as both exports and imports tumbled, highlighting the impact of President Donald Trump's tariffs even before negotiations with China unraveled and he threatened levies on Mexican goods.The deficit in goods and services shrank to $50.8 billion, nearly in line with economist estimates, from a revised $51.9 billion the prior month, according to a Commerce Department report Thursday. The merchandise-trade gap with China increased to $29.4 billion while the Mexico deficit narrowed to $7.9 billion. Meanwhile, Canada's Trade Gap came in at six month low as Exporters rebounded.
Treasuries rallied, while stocks trimmed gains as traders assessed mixed data from the world's largest economy. Oil tumbled as crude inventories delivered an unexpected build. The 10-year bond yield fell back below 2.1% as weak private jobs data outweighed a report showing service industries beat estimates. The Mexican peso rose after White House trade adviser Peter Navarro said that the Trump administration's plan to impose tariffs may not have to go into effect. Investors have aggressively increased bets the Fed will ease after a string of weak reports on retail sales, factory orders and home purchases indicated growth is slowing as the trade war weighs on businesses. While the service industries expansion report was robust, the ADP data suggest payroll gains in Friday's jobs report in the Labor Department could be lower than expected. "The weaker ADP report that just came out aligns with the drop in business sentiment we have been monitoring," said Matt Miskin, a market strategist at John Hancock. Investors will be watching the NFP report on Friday with anticipation to see if the jobs market is indeed starting to cool down.
Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca
The CAD and GBP were the worst performing currencies this week while the JPY outperformed. USDCAD climbed from 1.3430 up to 1.3547 before falling back to 1.3485. In early Asian trade Friday, Trump announced upcoming tariffs on all U.S. imports from Mexico – just hours after U.S. officials were promoting the new Canada /U.S./Mexico trade agreement. This caught the market off-guard sending USDCAD up to 1.3543. The move extended to 1.3565 in the London session – the highest since Jan. 3 and within 1 cent of a 2 year high. Canadian GDP data out Friday morning indicated a strong recovery underway in March from the low growth levels seen in Q4 2018 and Q1 2019. USDCAD managed to finish the week at 1.3508 – only ¾ of a cent higher which is surprising given that oil prices plunged 11% over Thursday and Friday. Since peaking near 6 month highs at $66.50 on April 23, oil prices have since fallen 21% towards 4 month lows. Also, North American equity markets – specifically the TSX and DJIA, sold off to the lowest levels in nearly 3 and 4 months respectively. The risk-off attitude in the markets boosted the JPY towards a 5 month high while the GBP dropped towards a 5 month low.
U.S. stocks rose and bonds pared losses after Federal Reserve Chair Jerome Powell signaled openness to rate cuts amid trade tension. The S&P 500 Index halted a two-day slide after antitrust fears erased more than $130 billion in market value from tech giants. While some analysts see the pullback as a buying opportunity, the recovery of stocks such as Alphabet Inc. was tepid. Investors are attempting to find their feet after a rout that pushed the S&P 500 into technically oversold territory for the first time this year. Powell pledged to keep a close watch on fallout from a deepening set of disputes between the U.S. and its largest trading partners. Traders have aggressively increased bets the Fed will cut interest rates this year after President Donald Trump widened ongoing trade tensions when he threatened last week to slap new tariffs on Mexico unless it stemmed migrant flows to the U.S.
U.S. stocks rose as a rebound in oil prices lifted energy companies, outweighing a rout in tech giants prompted by a report that the government is considering antitrust investigations. Energy producers led gains in the S&P 500 Index as crude jumped after Saudi Arabia offered reassurance that OPEC will keep global markets in balance. The yield on two-year Treasuries headed for its biggest two-day decline since January 2008. After a brutal month for most asset classes except bonds, June began with no let-up in geopolitical risks and economic concern. China implemented retaliatory tariffs and data showed global factories took another knock last month from trade tensions, adding to fear over a slowdown. A U.S. manufacturing index fell to its lowest level in almost a decade amid a fresh warning from Wall Street about recession risks. Meanwhile, President Donald Trump's tariff moves against Mexico last week sparked a wave of forecast revisions. A global recession could start within 9 months if the U.S. imposes 25% tariffs on an additional $300 billion of Chinese exports and Beijing retaliates, according to Morgan Stanley. Separately, JPMorgan said the probability of a U.S. recession in the second half of this year had risen to 40% from 25% a month ago.
Yesterday, USDCAD dropped from 1.3520 down to 1.3485 before climbing to hold a 1.3495 – 1.3517 range for the balance of the session. The pairing had broken above recent resistance between 1.3510/22 and extended to 1.3542/47 – the highest level since Jan. 3 before falling towards 1.3508 on Wednesday. In early Asian trade, Trump announced a 5% tariff on all goods from Mexico effective June 10th. This would rise in stages to a possible 25% by October if Mexico did not do more to curb illegal immigration. USDCAD spiked from 1.3495 up to 1.3540 accordingly. The risk-off mood overnight saw USDCAD eclipse Wednesday's high of 1.3547 and extend to 1.3565. Canadian GDP data was better than expected for March and despite a 2.25% drop in oil prices (which have fallen 14% over the past 10 days towards a 3 month low) USDCAD has declined back to 1.3508. Subsequent rallies have been limited to 1.3525/30.
U.S. economic growth remained robust in the first three months of 2019, according to an updated government estimate, while corporate profits weakened at the start of the year. Gross domestic product, a broad measure of the goods and services produced across the U.S., rose at a 3.1% annual rate in the first quarter, adjusted for seasonality and inflation, the Commerce Department said Thursday. Meanwhile concerns over the trade war between China and the U.S. still have markets on high alert.
The Bank of Canada left interest rates unchanged for a fifth straight decision and continued to signal it sees no need to move borrowing costs anytime soon, even as it expressed growing confidence the economy is rebounding. At a rate decision today, policy makers in Ottawa said recent data have "reinforced" their view a recent slowdown at the end of 2018 and early 2019 was temporary. However, they said mounting global trade risks are "heightening uncertainty" around the outlook. "In this context, the degree of accommodation being provided by the current policy interest rates remains appropriate," the central bank said in its statement, reiterating it will remain data dependent and closely monitor developments in household spending, oil markets and global trade. The recent policy pause is a reflection of an economy only just emerging from a serious slowdown, and which remains too fragile to cope with higher rates. Even without global trade uncertainties, the recent weakness has opened up enough slack to warrant the need for simulative rates, as least for now.
U.S. stocks rebounded from a third straight weekly decline, led by technology shares that bore the brunt of the decline as investors positioned themselves for what could be a protracted trade dispute with China. Treasuries advanced, sending 10-year yields to a 17-month low.
Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca
The JPY and the EUR were the top performing currencies this week while the GBP and USD lagged behind. With global equity markets falling towards 3 month lows, the flight to safety boosted the JPY and EUR. The GBP had fallen almost daily for the past three weeks nearing 5 month lows vs the CAD and 2 year lows vs the USD before rising late in the week - surprisingly even after UK PM May announced her resignation. USDCAD dropped from 1.3460 down to 1.3395 early in the week and extended down to 1.3357 early Wednesday as Canada posted a strong retail sales report. The 1.3380/1.3400 support zone in place the past 5 weeks was effectively broken but the pairing snapped back to 1.3440. The USD saw some brief strength on Thursday with the USD index (DXY) re-testing 2 year highs. Global equity markets sold off sharply with the DJIA down more than 400 pts at one point. Oil prices (WTI) plunged from $61.45 down to $57.34 – a one day drop of nearly 7%. WTI had tested $64 on Monday – near a 7 month high before falling to 2 month lows on Thursday. USDCAD climbed to 1.3502 briefly before falling back to 1.3465 on broad USD declines as the U.S. 10 year treasury yield fell to 2.29% - near an 18 month low. The 10 year yield had been as high as 3.25% back in November. USD weakness continued through Friday's session as U.S. durable goods order data missed estimates and saw significant negative revisions to prior data. Equity and commodity markets also recovered taking USDCAD from 1.3483 down to 1.3430.
Stocks rose in Europe on Monday after markets traded mixed in Asia as investors mulled three weeks of global declines amid escalating U.S.-China trade tensions. Core sovereign bonds in the European Union advanced after mainstream parties held their ground against populists in elections. The Euro Stoxx index climbed, helped by Fiat Chrysler's proposed merger with France's Renault, which drove up both carmakers' shares. U.S. stock futures drifted. Italian bond yields jumped as the country was said to face a $4 billion fine over failure to rein in debt. The yuan steadied after a senior Chinese economic official said speculators "shorting the yuan will inevitably suffer from a huge loss." The yen fell as the U.S. and Japan discussed a trade deal. The euro held most of its gains from Friday, while the dollar rose against a basket of major currencies. With holidays in the U.K. & the U.S. today, trading volumes could be lighter than usual.
Yesterday, USDCAD climbed from 1.3430 up to 1.3500 after having fallen to a 1 month low of 1.3357 on Wednesday. The main catalyst was a near 6% plunge in oil prices and a 400+ point drop in the DJIA. North American equity markets managed to recover somewhat and USDCAD eased back to hold a 1.3465/88 range for the balance of the session. Overnight, global equity markets recovered from yesterday's sell-off while oil prices moved back towards the $59 level. U.S. durable goods data came in weaker than expected and the USD is now the worst performing currency on the day. USDCAD dropped to session lows at 1.3439 after the data this morning before moving back up to 1.3465 as oil prices reversed back towards $57 and equity markets gave up the bulk of earlier gains. USDCAD has since eased back towards session lows. The GBP has been especially resilient today after PM May resigned and front-runner Boris Johnson commented on a possible "Hard-Brexit".
Stocks slumped globally on Thursday and traders took refuge in gold and bonds as the simmering trade dispute between the world's two largest economies took a greater toll on markets. The yen gained along with the dollar as the flight to safety continued. Meanwhile 10 year Treasury yields fell to their lowest level since 2017. Energy shares slumped as oil fell below $60 a barrel.