Donald Trump is facing his deepest crisis yet after a memo written by then-FBI Director James Comey surfaced on Tuesday, alleging that the president asked him to drop an investigation of former National Security Advisor Michael Flynn. Democrats say that, it true, Trump's request could amount to obstruction of justice, Noah Feldman, a professor of constitutional and international law at Harvard University, says that while it may not be a legal crime, that would still be an impeachable offence. The latest scandal to embroil the White House is moving markets, with the USD bearing the brunt of the initial reaction. The weakening dollar is not enough to keep the price of oil in positive territory, with a barrel of West Texas Intermediate for June delivery trading at $48.52 by 5:45am EST. For OPEC and its partners, maintaining and extending production cuts into 2018 may prove more difficult as seasonal factors which helped boost compliance in the first half of this year fade away. Saudi Aramco said it is planning to sign at least 10 energy deals on May 20 when Donald Trump visits the region.
The euro hit a six-month peak and US & German stocks touched record highs on Tuesday as signals on further European integration contrasted with political turmoil and fresh doubts about the economy in the United States. The euro's rally was reinforced by dollar losses prompted by allegations that U.S. President Donald Trump disclosed highly classified information to Russia's foreign minister about a planned Islamic State operation. That conspired with doubts over Trump's economic policy and a run of weak data to dampen expectations of a rate hike from the world's biggest economy next month. Euro zone markets were meanwhile buoyed by talks between the bloc's main powers, Germany and France, which may open the door to changing treaties to facilitate ambitious reform. A robust first quarter growth report for the bloc gave a further boost.
Crude rallied on the prospect a deal to cut global supply will be extended, leading a broader advance across commodities and spurring the currencies of major exporters. U.S. stocks advanced toward records, while the dollar retreated. West Texas Intermediate jumped more than 3% after Saudi Arabia and Russia said they'd extend a production-cut deal longer than expected. Crude also got a boost from China's sweeping plan to boost global infrastructure, though data showed the country's factory output and investment slowed in April. Commodities have struggled for weeks as signs of a crude glut re-emerged and President Donald Trump struggled to get his infrastructure plan underway. Numbers on American retail sales and inflation also cast a shadow on growth.
Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca
USDCAD opened the week near the 1.3650 support level – a level that has contained downside moves since April 28th. The pairing moved higher testing the 1.3730 level Tuesday and Wednesday before a surprise draw in oil inventories saw oil prices gain 3% sending USDCAD lower to test the 1.3650 level once again. The pairing broke back above 1.37 on a report that Moody's investor service was downgrading the credit ratings of the Big 6 Canadian banks. A quick move to 1.3770 Thursday AM fell short of last week's post-employment data spike high of 1.3787 (and the earlier 14 month high of 1.3794) and USDCAD closed below the 1.3700 level. Despite disappointing U.S. retail sales and inflation data on Friday, USDCAD managed to bounce back and close the week just above the 1.37 mark after having fallen from 1.3742 down to 1.3665 earlier in the day. Overall, the CAD finished the week largely unchanged vs. the other major currencies after having weakened to 11 month and 14 month lows against the GBP and EUR respectively last week. Oil enjoyed its first weekly gain in 5 weeks having rebounded nearly 10% from last Friday's 6 month low.
Yesterday, USDCAD was exceptionally volatile initially trading from 1.3668 up to 1.3740 before falling back to 1.3690. This was followed by a quick spike up to 1.3770 in early North American trade (perhaps due to the earlier reported story about Moody's Investor Service downgrading the credit ratings of the Big 6 Canadian banks). The move was short-lived with USDCAD subsequently declining to 1.3680 and holding near 1.3690 for the balance of the session. In early trade this morning, USDCAD rallied to 1.3742 before falling to 1.3720 ahead of the U.S. retail sales and inflation data. Both data sets were worse than expected sending USDCAD down to 1.3665 on broad-based USD weakness. Probabilities of a June interest rate hike fell from 83% to 73% accordingly after the U.S. inflation data missed estimates for the 2nd consecutive month. With oil prices starting to drift lower, USDCAD has since bounced back towards the 1.3715 level.
Moody's cut the rating of the big six Canadian banks this morning on consumer's debt burdens and growing concerns over Home Capitals recent liquidity problems possibly spreading throughout the sector. The Canadian dollar paid the price initially with a 2/3 cent drop. Also contributing to the slide was better than expected economic numbers out of the U.S.. MSCI's gauge of global stock markets was up 0.1 per cent, bringing their gains for the year to nearly 10 per cent.
President Donald Trump abruptly fired FBI director James Comey on Tuesday evening, in a move that is likely to increase scrutiny from Democrats -- and some Republicans -- of alleged ties between the president's campaign and Russia. Senate Intelligence Committee Chairman Richard Burr, a Republican, said he is troubled by the timing and reasoning of Director Comey's termination. Market reaction to the news has been subdued, although S&P 500 futures pointed to a slightly lower U.S. open. Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said in an interview on CNBC that U.S. banks should be freed from the Volcker Rule restrictions that prevent them from taking certain types of principal risk. Blankfein's statements follow Goldman's disappointing first-quarter fixed-income trading results. In other U.S. regulatory news, the president's newest Wall Street watchdog has managed to avoid Senate ethics committee scrutiny, in a highly unusual personnel move. The world's biggest independent oil trader says OPEC's quest to increase prices through production cuts could be in vain. Vitol Group warned that demand is not increasing as expected, while the U.S. shale output is growing faster than predicted.
Steve Brown, Senior Corporate Trader | Stevebrown@vbce.caUSDCAD opened the week near 1.3655 and broke above the 1.37 level as oil prices came under immense pressure falling more than 11% before staging a dramatic 6%+ rally during Friday's session. Despite the significant fall in oil, USDCAD only managed to gain about 1 cent above the previous week high of 1.3697. The U.S. Fed held rates at 1% and remained optimistic on the direction of the economy. Although admitting that the first quarter had been sluggish, they emphasized that the job market continues to remain strong. The probability of a June interest rate hike moved up to about 90%. The USD came under selling pressure after the release of Friday's jobs data. Wage inflation in the U.S. was softer than expected while the unemployment rate in Canada reached a 9 year low. After rallying to 1.3794 – a new 14 month high before the jobs data, USDCAD moved lower to close the week near 1.3650. Friday also saw record highs for EURCAD (a 14 month high of 1.5152) and GBPCAD (11 month high of 1.7854).
European stocks and bond yields rose on Tuesday, boosted by historically low stock market volatility, continuing relief from this weekend's French presidential election and solid corporate earnings. Europe's index of leading 300 shares was up 0.4 per cent at 1,552 points, Germany's DAX Germany's DAX rose 0.3 per cent, France's CAC 40 and Britain's FTSE 100 added 0.4 per cent. Asian stocks did not perform as well, with China's seventh consecutive loss – the longest losing streak for four years – weighing on the region more broadly. But overnight, the VIX index of implied volatility on the S&P 500 – the so-called Wall Street "fear gauge" – fell to its lowest intraday level since December 2006. It closed at 9.77, its lowest closing level since December 1993. The MSCI World index, which touched a record high overnight, dropped about 0.1 per cent. Weak Canadian building permits hit the CAD dollar at the opening.
Emmanuel Macron pledged to heal France's rifts after his comprehensive victory over Marine Le Pen in yesterday's presidential election. The first priority for the new president will be to try to secure as much support as possible in the parliamentary elections on June 11 and 18. The immediate reaction to the as-expected results in currency markets has been very muted, with the EUR/USD at 1.0945 by 2:22am PST, down nearly 0.5% on Friday's close. The German chancellor has reason to be pleased this morning, and not just because Macron prevailed in France. Her CDU party had an unexpectedly convincing victory over the Social Democrats in German state election yesterday. Next weekend sees elections in North Rhine-Westphalia, the country's most populous region and a potential bellwether for September's national vote. Saudi Arabia and Russia have signaled they could extend production cuts into 2018. Despite a brief pop on the news, oil was trading lower in the day by 2:30am PST, with a barrel of West Texas Intermediate for June delivery dropping 0.5% to $46.00. The ongoing glut in the world's oil supply is illustrated by the changing behavior of some of the world's biggest oil customers.
Yesterday, USDCAD dipped from 1.3740 down to 1.3700 before climbing to 1.3778 as oil prices plunged 5%. Overnight, the pairing climbed to 1.3794 as oil prices lost another 3%, falling to $43.79 – a 5 month low. The move could not be sustained as oil prices rallied from the lows sending USDCAD down to 1.3750. U.S. headline employment data looked better than expected sending USDCAD up to 1.3787 but looking into the details, negative revisions to wage inflation and prior month's data saw the USD decline across the board. Also, of the 211,000 job gains, 173,000 were of the "service" variety. Canada's data was not too bad although the unemployment rate ticked lower to 6.5% - a 9 year low. The oil rally has continued this morning having gained more than 6% from its Asian session low. Since the post- employment spike to 1.3387, USDCAD has steadily declined to 1.3683, just shy of Wednesday's 1.3680 low. Bounces have been limited to 1.3710 thus far.
Signs that centrist Emmanuel Macron was heading for victory in France's presidential election and reassuring results from HSBC pushed European shares to a near two-year high on Thursday, despite some wary signals from China and commodity markets. A poll showing Macron had outperformed far-right candidate Marine Le Pen in a televised debate sent short-term French bond yields to their lowest in five months, with encouraging euro zone data also helping the mood. Global signals were more mixed however. The weakest growth in a year from China's services sector added to the pressure on oversupplied oil and metals markets that have began to buckle again in recent weeks. Those strains were exacerbated too by a stronger dollar after the Federal Reserve had played down the somewhat soft start to the year for the U.S. economy at its latest meeting on Wednesday.
Federal Reserve officials leave interest rates unchanged while signaling they'll look past a recent deceleration in U.S. economic growthhttps://www.bloomberg.com/news/articles/2017-05-03/fed-refrains-from-rate-hike-while-maintaining-sunny-outlook
At 11am PST time the Federal Reserve will announce it latest monetary policy decision, with none of the economists surveyed expecting any change in rates. With market-implied probabilities showing just over a 50% chance of two hikes by the end of the year, the statement will be scrutinized for further signaling of an increase next month. The bank's plan for reducing the size of its $4.5 trillion balance sheet are also likely to be a central topic of discussion. There is no press conference following today's decision. In Brussels this morning, European Union chief Brexit negotiator Michel Barnier revealed his vision for how talks on the U.K. exit would progress. In Britain, Brexit Secretary David Davis flatly rejected a report in the Financial Times suggesting the bill for exiting the union could be as high as 75 billion euros, saying the U.K. would walk away from a deal with the bloc if provoked. The pound is currently trading at 1.7690 as the fractious atmosphere surrounding the negotiations shows little signs of improving.
Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca
USDCAD opened the week near 1.3500 but quickly dipped to 1.3410 after positive market sentiment ensued after the round 1 outcome of the French election. Late Monday afternoon, Trump announced a 20% tariff on Canadian softwood lumber and USDCAD broke above the 1.3530/35 March 2017 high. The uptrend continued reaching 1.3649 Wednesday evening before another Trump statement (he would not abandon NAFTA) sent the pair sharply lower towards 1.3530. The NAFTA comment effects faded the next morning and USDCAD climbed back towards 1.3650. Despite poor U.S. 1st quarter GDP data Friday, the technical uptrend continued with a test of 1.3700 (high 1.3692/97) before falling back towards 1.3630.
Stocks rose in Europe and Asia on Tuesday after technology industry shares hit record highs on Wall Street and investors focused on strong corporate earnings while shrugging off weaker-than-expected Chinese factory activity data. European stock markets opened higher after the May 1 holiday, reflecting the bullish mood on Wall Street, where the closely watched "fear gauge" of implied equity market volatility closed at its lowest since before the global financial crisis. Forecast-beating earnings have helped push shares higher across the globe this year. The US dollar hit a one-month high against the safe-haven Japanese yen on some signs of easing tensions over North Korea and as U.S. bond yields rose after U.S. Treasury Secretary Steven Mnuchin said the government was looking into issuing ultra-long debt of maturities in excess of 30 years.
On Friday, USDCAD climbed from 1.3623 up to 1.3697 before falling back to 1.3640. Despite higher oil prices and a disappointing 1st quarter GDP result, the USD finished the week strongly – having gained as much as 3 cents vs. the CAD (Monday's low was 1.3410). Overnight, USDCAD climbed from 1.3637 in Asia to 1.3687 during the London session before falling back to 1.3640 this morning after U.S. data was softer than expected. The pairing has since bounced to 1.3678 but quickly eased back towards the 1.3650 level.
Yesterday, USDCAD climbed from 1.3610 up to 1.3649 before plummeting to 1.3528 during the Asian session after comments by President Trump that the NAFTA agreement would not be abandoned. By the time North American markets opened, the upward trend resumed taking USDCAD up to 1.3670 – a 14 month high before easing back towards 1.3620. The pairing retested yesterday's high overnight before falling back to 1.3632 ahead of the Canadian and U.S. GDP releases. The initial market reaction was muted despite the large downside miss to the U.S. data although there were some inflationary aspects. Canadian data also missed slightly. Oil prices are trending higher today – nonetheless USDCAD is currently challenging yesterday's high.
President Donald Trump's tax plans include a proposal for a 1 time levy of 10% on more than $2.6 trillion in earnings U.S. companies hold offshore, according to a White House official familiar with the plan. The president's move to cut the corporate tax to 15% in the U.S. is being seen as an opening gambit in negotiations, rather than a red line, by economists as the drop in receipts would boost the deficit too much to be sustainable. Investors will scour the presentation for fresh details and await reaction from Congressional Republicans who'll be charged with enacting the changes. International banks are getting serious about moving to Frankfurt ahead of the U.K.'s exit from the European Union, according to property brokers in Germany's financial capital. Estimates on the number of financial jobs London will lose post-Brexit range from 4,000 to 232,000. European Commission President Jean-Claude Juncker and chief negotiator Michael Barnier will be in the British capital today for their first talks with PM Theresa May since she triggered the start of Brexit negotiations.