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Daily Market Analysis Policy Tightrope Continues

Stephen Casey September 15, 2016

– Bank of England Maintains Current Policy

– US Employment, Retail Sales Data On Deck

– CAD Higher With Crude


Good morning. A busier North American session kicks off in just a few minutes with a number of key data points. Overnight was also busy with Australian jobs number pacing the Asian session and another important Bank of England meeting concluding just over one hour ago. The big dollar has been up and down as markets position themselves through a myriad of central bank meetings and speeches. While Fed-speak has guided North America for the first half of the week, we turn to hard data today in the form of employment, retail sales and inflation figures for the world’s largest economy.

Australian employment figures paced an otherwise quiet Asian session. It was reported that their economy lost 3.9k jobs last month although unemployment declined to 5.6%. The Australian dollar has been under considerable pressure for much of the week, slumping lower with crude and other commodity prices but found a bit of support in the overnight session. Elevated volatility in equities markets have filtered into the commodities markets and in turn caused quite a stir for currencies such as the Australian, New Zealander, and Canadian dollars. New Zealand Q2 GDO figures showed a 0.9% increase overnight but the kiwi dollar is unchanged in trading. The Japanese yen is steady today, having dipped below psychological support levels as trading kicked off in Tokyo. According to one of Prime Minister Abe’s closest advisers, the Bank of Japan has leeway to further loosen policy when the central bank concludes its next policy meeting next week.

Turning to Europe, it was all about the Bank of England. Policymakers in the UK kept rates firm at 0.25% and kept their asset purchase scheme at 435 billion Sterling – as a result, the pound depreciated slightly versus the dollar even as some expected the central bank could enact more easing measure. This was the final “monthly” meeting for the BOE which now switches to eight meetings per year, the next coming in November, followed by the final meeting of 2016 in mid-December. In November, the bank will be publishing new forecasts for inflation and growth and Chairman Mark Carney will conduct a press conference following the conclusion of the meeting. Some other notable European data releases today include euro-area trade balance and consumer prices. It was reported that that the EU’s trade surplus for August came in +€25 billion while consumer prices ticked up marginally over 2015 by 0.1%. The euro is largely unchanged from Wednesday, having lost a bit of ground to the dollar but gained versus the pound. Tomorrow, euro-area labor and wage data closes out the week but should go largely unnoticed.

We have a very busy slate as North American trade kicks off, notable for the US data calendar. This morning markets will get another important look at the health of the labor sector in the form of weekly jobless claims. It is expected that only 261k Americans filed first-time claims for the week ending September 9th. In addition to claims, we get August producer prices and retail sales – both which carry a lot of weight as the Fed monitors prices and consumer sentiment. A strong 2.5% bounce in retails is expected to be announced, and any beat of that figure should generate some bullish sentiment for the greenback. Finally, later this morning we have industrial and manufacturing production for the month of August. Although the services sector is Top Dog for production in the US, both numbers are important to the relative health of the American economy and markets will be keenly aware both results. Tomorrow, we round out the week with consumer prices and Michigan consumer sentiment readings for August. August CPI is the big number though with Wall Street anticipating a mild increase over July and a 0.9% increase in prices over the same period in 2015. As previously reported, the US dollar has had an up and down week but there is plenty to digest over the next thirty-six hours or so. Next week, the FOMC concludes its latest policy meeting on the 21st, futures markets currently indicate an 85% chance of no change.

Coming into Thursday, the Canadian dollar had lost ground versus the big dollar on five of the previous six trading sessions. Oil prices had slumped more than $4 or 8% off of last week’s highs, keeping the Loonie and other commodity currencies trading lower and lower. Two weeks before a crucial OPEC meetings where key members Saudi Arabia and Iran will decide on a potential production hike, crude prices continue to turn over. Adding to the sell-off for the Canadian dollar was an uptick in US treasury yields, which made an assault on 1.70% yesterday and gave the greenback a late boost. Speaking in London on Wednesday, Bank of Canada Deputy Governor cautioned that investors and those in the financial system need to adjust to the new normal of slowing growth and low rates. Speaking to constituents, Ms. Wilkins warned that for “households, this may mean saving more before retirement or planning for a lower post-retirement income.” Yikes – remind me to keep Ms. Wilkins off the invite list for my next dinner party. The Bank of Canada kept rates unchanged at 0.5% last week and cited inflation risks have tilted “somewhat to the downside.” The data calendar remains thin up north through the rest of September.

And on that happy note, good luck and have a great Thursday.

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