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Daily Market Analysis
Lowered Expectations

Sean Coakley September 14, 2016

End Of Summer Sparks Return of Volatility

– UK Economy Still Strong

– Greenback Continues To Spike Against CAD

 

With less than a week until the next meeting of the Federal Reserve traders are increasingly skittish as muddled data continues to make the future of interest policy in the world’s largest economy unclear. Over the last few days, as market participants begin to lose faith in the power of low rates to solve all economic ills we have seen occasional spikes in volatility across an array of asset classes as trader’s suppressed fear begins to re-emerge. It also looks increasingly likely that as market participants begin to countenance the limits of central bank policy makers in kick starting global growth this combination of fear and despondency will have implications for a long time to come.

Today’s mixed mood kicked off in Asian trading which saw equities down across the board as the aforementioned volatility suppressed in the summertime has returned to the fore. With the VIX index, Wall Street’s fear gauge, approaching levels not seen in months the Japanese yen saw gains as traders shifted to safe haven assets. Looking southwards, both the Aussie and New Zealand dollars have seen a slight knock as they deal with the combined effects of tempered risk appetites and weaker commodity prices.

Despite the uncertainty around Brexit the British economy appears to be ticking along nicely with average earnings beating expectations and the unemployment rate stable despite a slight increase in the number of benefit claimants.  Even in light of this the sterling still struggles, losing ground against both the US dollar and the common currency across the channel. Notwithstanding the good news out of the UK, the rest of Europe is still in a glum state with equities down across the board while the latest industrial production figures for the EU point to larger than expected declines.

Heading into the North American session it appears that equities will follow the trend set in Asia and Europe with the SP 500 bouncing along its monthly lows.  A growing sense of unease is palpable in North American as well, as traders fret about the combined effects of its monthly lows.  A growing sense of unease is palpable in North American as well, as traders fret about the combined effects of equity market that look increasingly expensive, the limits of central bank policy, as the long-term consequences of negative yields. Against this backdrop the greenback has been a relative underperformer, showing weakness across the bulk of its crosses with the exception of the Canadian dollar where it has seen a remarkable spike over the last few days.  It’s likely some of the shine coming off of North American oil prices has placed pressure on the loonie. With oil prices still susceptible to OPEC related disappointment it’s anyone’s guess as to whether this latest round of loonie weakening is a fleeting opportunity for Canadian exporters or the start of something more sustained.

Best of Luck,

 

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