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Turnaround Tuesday

by Stephen Casey | July 19, 2016

Good morning. Risk appetite seems to be taking a day off as equities and other risky assets are lower this morning, boosting gold and US treasuries. Following another strong start to the week, safe haven currencies such as the US dollar and Swiss franc are rising on Tuesday as a bit of summer fatigue takes over the marketplace. The data calendar is on the lighter side this week ahead of Thursday’s European Central Bank meeting, with markets keeping a closer eye on the situation in Turkey than UK inflation figures (reported overnight to little fanfare).

The Australian and New Zealand dollars were lower today, pacing the Asian session as investors begin to prepare for rate cuts by both central banks. The “Aussie” dollar fell by more than 1% against other major currencies as the minutes from last month’s RBA meeting suggest the bank is closer to moving on rates than once perceived. Meanwhile, the New Zealand dollar was lower against all thirty-one major currencies as traders fear the RBNZ is also prepared to cut to rein in their country’s housing market. The Japanese yen was surprisingly lower overnight, not finding demand as a safe haven as local stocks were higher for the sixth straight day. Tuesday’s dip in sentiment seemed to have spared Japan as a new Reuters poll seems to suggest more easing is on the way from the Bank of Japan – perhaps as early as this month. The Riksbank also entered the fray, offering some caution and preparing markets for more rate cuts as the minutes from their last meeting hit the wires overnight. As earlier reported, UK inflation and retail prices were reported today, both a little higher than expected but those results spared Sterling, which fell lower against the big dollar. The euro was unchanged – AGAIN – even as business sentiment indices from both Germany and the Euro-area missed the mark. As the market prepares for Thursday’s ECB rate announcement, expect some stability for the single currency.

The data calendar is very thin today for the US and Canada. The big dollar remains in a holding pattern against most majors after this weekend’s failed Turkish coup attempt. On Monday, US stocks once again hit new all-time highs as we hit the peak of second quarter earnings season. This week, more than ninety companies will be reporting quarterly earnings, which could play a significant role in Fed monetary policy decisions for the second half of the year. At the moment, the market indicates there is virtually no chance for any FOMC rate hikes until at least the December meeting, and even that is only given a 43% chance. Some of America’s biggest banks are reporting strong earnings but citing low interest rates as a continued drag so expect this matter to get more attention this week. Building permits and housing starts for the month of June are reported at 8:30am – both of which shouldn’t garner much attention.

The Canadian dollar started the week on a positive note, rising around 0.50% in the face of oil prices which slipped a little more than a percent. The failed Turkish coup could have created a short term shock but the nervousness receded as the government regained control in a short amount of time. There was never any disruption to Turkish ports. Similar to the US, data will be scarce this week with the highlights coming on Friday with inflation and retail sales data. The big event this week remains Thursday’s European Central Bank meeting and Chairman Draghi’s 8:30am EST press conference. The Loonie could experience a nice bounce should the ECB contemplate NIRP and/or an increase in current stimulus measures in the wake of the Brexit and uncertainty surrounding the Middle East. The USD/CAD rate had been trading just above the 21-day, 50-day and 100-day moving averages so it should bear watching over the next few days.


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