Good morning. Foreign exchange markets are chugging along this morning, still digesting the news from last weekend’s Jackson Hole symposium. The big dollar is holding up well against a basket of its peers with the dollar index moving north and coming within striking distance of the 200-day moving average. Global equity markets were flat overnight and North American futures currently point to a quiet open. We get some more Fed-speak tomorrow which could guide price action as the data calendar remains quiet for a few more days. With this being the unofficial last week of the summer, participation throughout the markets remains very low as September kicks off the spring to the finish of 2016 with key policy decisions under the microscope.
The euro is grinding lower this morning, following a release that shows Economic sentiment in the 19 countries sharing the euro fell to the lowest level in almost six months. The Economic Sentiment Indicator fell one point from July as confidence fell in four of Europe’s top five countries (French sentiment rose). This is worth watching as we are a little over one week away from the next European Central Bank meeting. Mr. Draghi and his colleagues have a lot on the table as the Brexit and various banking crises have painted policymakers into a corner.
The pound is unchanged from Monday, not affected by UK mortgage approvals which posted their lowest monthly numbers in almost two years. It was similarly very quiet during the Asian session as currency markets traded within a narrow range and equities finished higher by a few basis points. The Japanese yen’s slide was halted a bit on Tuesday, having been one of the biggest losers from the Jackson Hole comments. The Bank of Japan’s Funo will be speaking on Wednesday morning. And finally, in Hong Kong, equity markets recovered on Tuesday as worries over a Fed rate hike dissipated. Similar to North American markets, the data calendar picks up in the second half of the week when a slew of manufacturing PMIs (Japan, Korea, China, Taiwan) are released. Until then, more broad themes should be guiding short-term price action.
Some housing data paces what is expected to be another quiet US trading session. This morning, markets will get a look at S&P/Case-Shiller Home Prices for the month of June – another modest rise of 0.8% is expected to be announced at 9am EST. The American data calendar is once again back-loaded this week , with key employment releases on Wednesday, Thursday, and Friday. Friday’s August non-farm payrolls (NFP) report is the highlight but tomorrow markets will get a precursor in the form of the ADP Private Employment Change. Averaging 181k jobs-per-month in 2016, another strong ADP result could give the greenback another boost. As Fed Vice Chairman Stanley Fischer mentioned on Friday, the committee remains data-driven when contemplating the schedule for rate hikes and this week’s employment data will play an important role in that decision making. Mr. Fischer followed up those comments today with an interview on Bloomberg TV, commenting that the labor sector is, in fact, approaching “full strength.” With participation very low again approaching the long Labor Day weekend, volatility could be elevated around these important employment releases. The Fed’s Rosengren, Kashkari, and Evans will all be speaking on Wednesday.
The USD/CAD rate bounced back above important psychological levels on Monday – this pair being one of the key beneficiaries from the Jackson Hole symposium. This week’s Canadian data highlights are tomorrow’s Q2 GDP figures and Friday’s July trade balance report – and both results could have a lasting impact on the Loonie in the wake of last week’s greenback gains. In June, Canada reported the biggest deficit on record at $3.63 billion. As PM Trudeau begins to enact his progressive agenda, another sizable deficit coupled with shrinking growth could lead to further losses for the Canadian dollar. The estimate for July is somewhere around $3.2 billion. Economic activity is expected to have contracted by -0.9% in Q2 after a surprise +0.6% jump in the first quarter of 2016.
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