Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca
The CAD enjoyed a good start to the week reaching multi-week highs against most currencies. The TSX reached 6 month highs while oil prices gained 3% early in the week to send USDCAD from 1.3368 down to 1.3251 – a 3 week low. On Wednesday, USDCAD dropped from 1.3348 down to 1.3257 as the USD broadly weakened after the U.S. Fed held interest rates steady at 2.5% along with notable lowered economic projections. The Fed now anticipates just a single rate hike over the next 2 years after having raised rates 4 times in 2018. U.S. yields dropped sharply towards 15 month lows while commodities and equities climbed on "dovish" Fed statement and forecasts. USDCAD tested 1.3276 on Thursday before climbing to 1.3400 as the USD flows from Wednesday were largely reversed. USD gains continued Friday taking USDCAD from 1.3350 up to 1.3430. Canadian retail sales missed estimates while prior data was revised even lower. Canadian inflation data did move higher driven by higher energy prices. Overall, the CAD lost substantial ground during Thursday and Friday and ends up as the worst performing currency on the week behind the GBP. The JPY was the best performing currency this week propelled by the late risk-off attitude in the markets.
Garo Mavyan | Retail FX & Precious Metals Trader
Since Brexit became a political reality in 2016, UK Prime Minister Theresa May has struggled to succeed with her monumental task to negotiate the UK's withdrawal from the European Union. In November 2018, despite tense negotiations, it was announced that May and European leaders had agreed to a tentative withdrawal agreement. However, though it did help to momentarily ease market volatility, the optimism surrounding the agreement was short-lived. Members of the opposing Labour Party, and even dissenting members of May's own Conservative government, overwhelmingly expressed their objections. As expected, British lawmakers voted to reject the deal in January 2019. This handed May the dubious honour of suffering the biggest parliamentary defeat in modern British history. In a subsequent vote, the deal was rejected again, highlighting May's apparent incompetence to lead the Brexit movement. With no successes at home, she was forced to return to Brussels to attempt to rescue any chance of an orderly and smooth exit from the EU.
The rally in bonds gained momentum as traders turned their focus to a worrying economic outlook. Stocks fell, while the dollar rose. Treasury 10-year yields slid below 2.4% and rates on benchmark German bunds sank deeper under zero after European Central Bank President Mario Draghi said that an accommodative policy stance is still needed. Speculation that the Fed will consider lowering rates appears to have spread, with some forecasting a cut this year. Stephen Moore, President Trump's pick for an open Fed board seat, said in a New York times interview that the central bank should immediately cut rates by half a percentage point.
U.S. stock extended losses as traders remained on edge following Friday's sell-off. Ten-year Treasury yields traded near 2.44% after a closely-watched part of the U.S. curve inverted on Friday as investors wager the Federal Reserve will need to cut rates. The greenback dropped against most its Group-of-10 currency peers. European shares fell even after data showed confidence among German companies improved. While weakening data and a pivot by global central banks away from tighter policy is shaking confidence, a breakthrough in U.S.-China trade talks could provide support going forward. The pound rose at the start of a week that could bring yet another vote on U.K. Prime Minister Theresa May's Brexit plan. Chancellor of the Exchequer Phillip Hammond and other cabinet colleagues publicly backed May on Sunday as several British newspapers said she's under increasing pressure to stand down over her handling of Britain's exit from the European Union.
Yesterday, USDCAD initially dipped from 1.3310 down to 1.3276 before climbing to 1.3400 – erasing Wednesday's move from 1.3350 down to 1.3258 (a 3 week low). The pairing then eased back to 1.3355. USDCAD edged up to 1.34 ahead of the Canadian data this morning. Retail sales were softer than expected and saw negative revisions as well. Inflation data came in higher than expected. USDCAD initially jumped to 1.3426 (a 2 week high) on the retail sales data before falling back to 1.3380 on the CPI data. The pairing has since moved up to 1.3415 and back down to 1.3387. The EURO has been hit hard today due to weak manufacturing data in the Eurozone. The JPY is the best preforming currency as most equity indices are trending lower while U.S. 10 year yields have fallen towards 16 month lows.
Government bond yields retreated while U.S. equities fluctuated on Thursday as investors digested a dovish lurch by policy makers in the world's largest economy. The dollar rebounded after Wednesday's loss. The yield on 10-year Treasuries extended a drop from a day earlier, rates slumped across Europe and gold climbed as a cautious mood prevailed in the wake of this week's Federal Reserve meeting. While easier monetary policies in the U.S. at first glance look supportive for risk assets, most have already posted strong gains in 2019 and a dovish Fed was likely priced in. At the same time, the extent of the central bank's tilt has raised concern the outlook for growth may be weaker than thought. Treasury yields had already dropped amid worries about the global expansion in recent weeks -- they are now plumbing the lowest levels in more than a year.
U.S. equities slipped as cautious investors await the Federal Reserve policy decision today at 11am and further news on the U.S.-China trade talks. Ten-year Treasury yields slipped. The S&P 800 Index opened lower and the USD ticker higher after 3 days of losses, while two-year Treasury yields remained below the top of the Fed's policy target range amid expectation of a dovish tone from the central bank. Apart from a hold on rate increases, markets will watch for any word on plans to end the Fed's current bond-portfolio run-down. The pound fell as U.K. Prime Minister Theresa May sought to extend the Brexit deadline to June 30, while opposition called for the public to have the final say over the country's EU exit.
U.S. equities jumped out of the gate as investors awaited central bank decisions due later this week, including word from a recently more-dovish Federal Reserve. The euro strengthened while Treasuries slipped. The S&P 500 Index rose at the open Tuesday after climbing to a five-month high the day before. Consumer-discretionary, materials and semiconductor stocks led the charge. The Dow Jones and Nasdaq 100 gauges followed suit, while European shares gained after Asian stocks drifted. The Fed's shift in recent months has helped reignite a global equity rally on bets that policy makers will act to support growth. Volatility has evaporated across assets as a result, but with expectations the Fed will point to one more rate hike in 2019, it's possible markets could be over-pricing a Goldilocks scenario. And even as the equity markets rally, uncertainty surrounding Brexit and trade remains.
U.S. equities gained at the start of a week filled with potentially significant catalysts from central bank meetings, geopolitical developments and economic data. Treasuries and the USD drifted lower. The S&P opened slightly higher, led by financial and energy shares, while chipmakers helped propel an advance in the Nasdaq 100. Equities are grinding higher and volatility is declining on expectations the Fed will point the way to just one rate hike in 2019 when it meets this week. Other central bank gatherings, including for the Bank of England, will give further clues on monetary policy. In politics, investors are keeping an eye on this week's Brexit developments as the British prime minister works to win support for her divorce agreement. Oil gained as OPEC and its allies recommended deferring a decision on whether to extend oil production cuts until June.
Yesterday, USDCAD climbed from 1.3286 up to 1.3348 before falling back to 1.3313. The pairing would hold near 1.3320 – 1.3335 for the balance of the session. Overnight, the USD broadly declined taking USDCAD down towards Thursday's 2 week low. The move stalled at 1.3289 and USDCAD has been climbing through the London and early North American sessions. Oil prices had briefly broken above the $59 mark – a 4 month high but have since retreated. USDCAD broke above yesterday's high and traded to 1.3371 – a 4 day high before falling back to 1.3340. Most equity indices are trending higher again today while U.S. 10 year yields have fallen towards 14 month lows.
Garo Mavyan | Retail FX & Precious Metals Trader
2019 has not been kind to the global economy. As anticipated in 2018, economists' predictions that growth amongst all major economies was to experience a gradual but pervasive slowdown have come true. The world's two economic behemoths, the United States and China, are predictably feeling the sting; this month, the US reported much lower than anticipated payroll and job growth, and China's exports tumbled by approximately 20% in February—the biggest drop in years. The two nations' economic woes have applied only more pressure to President Donald Trump and his Chinese counterpart, President Xi Jinping, to swiftly end their ongoing trade dispute. Tariffs have been imposed, retaliatory tariffs have been authorized, both sides appear to be at a stalemate and no meaningful developments have occurred for about a year. China's own Ministry of Commerce grimly commented that we are witnessing the largest trade war in economic history—with no end in sight.
Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca
The CAD lost ground to the USD and JPY while gaining against the EUR and GBP. The common theme this week was lowered growth forecasts and declining equity markets. The JPY and USD out-performed on risk aversion flows while the broader USD index (DXY) climbed to a 4 month high. The USD held strong despite 10 year yields falling back towards 1 year lows. USDCAD opened the week near 1.3275 and touched 1.3360 on Tuesday. A combination of poor Canadian trade data and a dovish Bank of Canada sent USDCAD up to 1.3457 – close to a 2 month high. The BOC acknowledged that "the slowdown in the fourth quarter was sharper and more broadly based. Consumer spending and the housing market were soft, despite strong growth in employment and labour income. Both exports and business investment also fell short of expectations. After growing at a pace of 1.8 per cent in 2018, it now appears that the economy will be weaker in the first half of 2019 than the Bank projected in January." Subsequent attempts higher stalled at 1.3468 on Thursday and 1.3466 on Friday. Canadian employment data surprised to the upside of the 2nd consecutive month while U.S. headline jobs data missed sharply. USDCAD dropped to 1.3390 and closed the week near 1.3400.
U.S. stocks fluctuated after a three-day rally, while the dollar surged amid concern a trade deal with China remains elusive. The pound fell as the Brexit saga rumbled on. The S&P 500 swung between losses and gains amid news a meeting between President Donald Trump and President Xi Jinping to sign an agreement ending the trade war is now likely to happen in April at the earliest. The index had jumped 2.5 percent in the prior three days, pushing past the 2,800 level that had capped prior advances.
U.S. equities climbed as data showed better-than-expected demand for durable goods and modest pressure on inflation. The GBP jumped before another Brexit vote and the USD dipped. The S&P 500 Index gained for a 3rd day, wiping out last week's losses and reaching a 4-month high as it held above the key 2,800 level that it has struggled to breach in recent weeks. European shares also advanced. Crude oil rose toward $58 a barrel in New York. Treasury yields ticked higher as data showed orders for business equipment rebounded in January by the most in 6 months as the producer price index rose less than forecast in February. The U.S. data signaled a positive start to the year for the world's biggest economy and little pressure on the Federal Reserve to raise interest rates, just as investors were digesting disappointing numbers from Japan and Australia. The ongoing Brexit drama, a cut to the U.K.'s growth forecast and a warning from America's top trade negotiator that tariffs may not be rolled back are adding to the complex picture, with reports on Chinese production and retail sales and a Bank of Japan policy decision also coming up this week. Sterling extended its gains for the week and gilts fell as U.K. lawmakers prepare to vote on whether to tear the country out of the European Union with no agreement, or give themselves the chance to delay Brexit in the hope of securing better terms.
Most U.S. stocks edged higher and the dollar slipped on speculation an unexpectedly weak inflation reading will give the Federal Reserve room to stay patient on rate hikes. The pound retreated ahead of a key Brexit vote Tuesday. The S&P 500 added to its best advance since January, with major media shares leading gains. Boeing again weighed on the measure, as more countries closed air space to the 737 Max plane. The company's shares lost 2.8 percent. The dollar fell and 10-year Treasury yields turned negative after core inflation cooled. The pound slumped and U.K. bonds pared a drop after the chances lawmakers approving a Brexit deal lessened. Crude oil climbed after Saudi Arabia was said to extend deep supply cuts.
U.S. stocks bounced back from the worst week of the year, as the latest retail-sales data boosted confidence that the economy isn't headed for a downturn. Treasuries slipped and the dollar held steady. The S&P 500 rose for the first time in six days, while the Nasdaq 100 jumped after Nvidia agreed to a deal and Apple was upgraded. Boeing tumbled after China grounded 737 Max flights following a crash in Ethiopia Sunday. The planemaker is the biggest component of the price-weighted Dow Jones Industrial Average, which slipped. Banks helped the Stoxx Europe 600 Index to its first advance in four sessions, with Commerzbank AG among the biggest winners. In Asia, Chinese shares outperformed, paring some of Friday's losses, with stocks in Japan and Hong Kong also higher. A slew of data releases this week will be closely watched for clues on growth and the impact of central bank policy in the U.S., European Union and China, with the Bank of Japan the next to meet. On the trade front, Beijing and Washington are in general agreement on many crucial issues and have held meaningful discussions on foreign exchange, People's Bank of China Governor Yi Gang said.
Yesterday, USDCAD traded between 1.3413 – 1.3467 as the USD and JPY outperformed on the back of weak China trade data and dovish European central bank comments. USDCAD declined from 1.3460 down to 1.3390 this morning on the back of a stronger Canadian jobs report that saw 67,400 full time jobs added and a rise in wages. U.S. headline data was surprisingly weak but other details within the report helped stabilize the USD. Equity markets and oil prices are lower on the day while U.S. 10 year yields have fallen to 2.60% - near 1 year lows. USDCAD did bounce back to 1.3445 but has since declined to 1.3419.
U.S. and European stocks slumped as investors fretted that the ECB's dovish turn didn't go far enough in light of policy makers' worsening concerns about the global economy. The euro fell to a four-month low.
The S&P 500 Index declined a fourth day, with financial shares among the worst performers in early trading. After an initial spike for the Stoxx Europe 600 when the European Central Bank pushed back guidance on rate hikes and announced a new series of long-term loans to support lenders, the gauge headed lower as details of the plan disappointed some traders. Treasuries advanced with European bonds, as the yield on Germany's 10-year notes dropped to the lowest since 2016. The dollar rose for a seventh day.
The Bank of Canada bank left its overnight benchmark rate unchanged at 1.75% for a third straight decision Wednesday, as widely expected. From their last statement in January, policy makers dropped their assertion that rates will need to rise over time, while adding a reference that borrowing costs will remain below neutral for now and there is increased uncertainty about the timing of future rate increases. The language should reinforce expectations that Governor Stephen Poloz will be on hold for a while as policy makers gauge the extent of recent weakness in Canada's economy as well as the underlying strength of the global expansion. At the same time, Poloz seems reluctant to abandon fully the idea that the next step is likely higher, making him a bit of an outlier among industrialized economy bankers. A dovish tilt at today's rate decision had been expected, given what is currently priced into the market. While many economists are still projecting a rate increase this year, swaps trading suggests investors are giving zero probability that the Bank of Canada will budge rates, either higher or lower, from here. The Canadian dollar extended declines after the decision, falling 0.6 percent to C$1.3432 against the U.S. currency.
Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca
The CAD had a volatile week initially falling to 1.3112 (close to the Feb low of 1.3068) before climbing to 1.3235. Oil prices slumped nearly 3% early in the week on Trump's tweet: "Oil prices getting too high. OPEC, please relax and take it easy." The move above 1.32 was short-lived as U.S. Fed Chair Powell offered up some dovish comments that sent U.S. 10 year yields down towards 1 year lows and broadly weakened the USD. It was also reported that Saudi Arabia could extend oil production supply cuts through the end of 2019. Oil prices rallied 3% on the reports while USDCAD dropped back towards 1.3118. The trend changed again on Thursday as U.S. 4th quarter GDP data beat estimates sending the USD and 10 year yields higher. USDCAD climbed to 1.3207 before falling back to 1.3140. On Friday, Canadian 4th quarter GDP results were far weaker than expected sending USDCAD from 1.3130 up to 1.3307 – just shy of the February high of 1.3340. The move higher was aided by a 4% drop in oil prices. The CAD and the JPY were the worst performing currencies this week while the GBP outperformed as the probability of a "No Deal" Brexit diminishes.