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Daily Market Analysis
Summer Time Chill

by Sean Coakley | July 13, 2016

After several sessions of excitement in the wake of Friday’s blockbuster non-farm payrolls a sense of calm has descended upon the markets as the latest risk rally takes pause.  In view of more subdued price action in equities a long with the return to overall declines in bond yields it’s clear that the optimistic tone struck over the course of the last few days has begun to ebb with obvious implications for those hoping for a continued rally in risk sensitive assets.

As the day begun in the land of the rising sun, the Japanese yen gave up some of the ground it gained in the wake of Brexit fear due to the combined effect of improving global risk sentiment as well as diminished expectations for growth in the Japanese economy. While industrial production figures were revised lower signalling a contraction in the manufacturing sector.  Looking to China, export and import data both showed declines illustrating that the Chinese economy still faced serious headwinds yet despite the bad news out of both Japan and China overall activity in equity markets across the region was positive while the southern currencies of Australian and New Zealand saw gains as well.

With the European session well underway the Sterling has begun to shine, bouncing off the historical lows seen last week with today seeing yet another gain today as Theresa May, a remain supporter, was appointed Prime Minister.  With part of the political uncertainty in Europe resolved and the potential for continued monetary largesse from the ECB and Bank of England, equities continue to climb higher while sovereign bond yields in the region slide lower. Eyeing the euro, one can see that the positivity propelling the pound has not had a similar impact on its continental counterpart as the common currency ebbs lower against both the sterling and the greenback.

Ahead of the opening bell in New York, the tone struck in Asia and Europe looks to be continued stateside.  While equity futures signal a positive start to the day, the overall market remains near all-time highs and certainly, the pace of change has abated.  With commodity prices including gold and oil losing their shine, the overall trend in the loonie is one of weakness versus a US dollar that is recovering part of its earlier loses. Intraday movement in the pair remains highly variable with multiple cent movements in the pair being the norm, today will be no exception as the Bank of Canada is set to make their rate announcement later this morning.  With overall activity in the Canadian economy sluggish yet resilient even in light of continued headwinds, it is expected that the BoC will stay the course on rates with the real focus being on the tone of the accompanying commentary to the rate announcement as traders parse the information for clues as to the future intentions of the BoC.


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