Well, that was fun while it lasted! U.S. equities took a break from their rallies on China’s hints about trimming its Treasury holdings and NAFTA came back in the picture.
Issues about this trade agreement had a bigger impact on the Loonie, though, as Uncle Sam’s withdrawal could significantly hurt Canada’s export activity.
- Canadian building permits slumped 7.7% vs. projected 0.7% dip
- U.S. import prices posted 0.1% uptick vs. estimated 0.4% gain
- U.S. final wholesale inventories up 0.8% vs. 0.7% consensus
- U.S. EIA crude oil inventories fell by 4.9M barrels vs. 3.9M forecast
- Fed official Evans: Delay on hikes might be needed due to inflation
- Evans: U.S. economy at full employment but not overshooting it
- Fed official Kaplan: Expects three rate hikes in 2018
- Kaplan: Stronger wage pressures expected this year
- Fed official Bullard: Suggested shift from inflation target to level-targeting framework
- Bullard: Doesn’t see high chance of recession but inflation miss becoming persistent
- Canadian gov’t worried that Trump would pull U.S out of NAFTA soon
U.S. equities snap positive streak
Risk aversion from earlier sessions on rumors that China might slow or halt purchases of U.S. treasuries carried on until the New York hours, dampening gains in the stock market as well.
- Dow 30 index is down 16.67 points to 25,369.13 (-0.17%)
- S&P 500 index is down 3.06 points to 2,748.23 (-0.11%)
- Nasdaq is down 10.01 points to 7,153.57 (-0.14%)
It didn’t help that medium-tier reports from the U.S. came in weaker than expected. Import prices posted a meager 0.1% uptick instead of the estimated 0.4% gain to suggest weaker inflationary pressures while wholesale inventories were up 0.8%, a notch higher than the 0.7% forecast.
Gold jumped to its highest level in four months while Treasury yields surged to 10-month highs. Other precious metals ticked higher, too:
- Gold climbed to $1,318.67 per troy ounce (+0.50%)
- Silver rose to $17.01 per troy ounce (+0.40%)
- Platinum advanced to $973 per troy ounce (+0.89%)
U.S. to pull out of NAFTA?
Canadian government officials have become increasingly worried that President Trump would pull the U.S. out of NAFTA, potentially putting Canada’s export activity in jeopardy.
Keep in mind that roughly 75% of Canada’s exports go to the U.S. so losing this trade agreement might put a huge dent on production and overall growth.
These concerns come ahead of the sixth and last round of talks scheduled for later this month, with the Donald hardly showing any willingness to reach a compromise. A White House spokesperson clarified that “there has been no change in the president’s position on NAFTA.”
One of the Canadian government sources shared that officials are already preparing for scenarios in which NAFTA is scrapped. They did say that Canada would stay at the negotiating table to hammer out a deal with other stakeholders, such as Mexico.
Mixed remarks from Fed officials
A handful of U.S. central bankers gave testimonies and shared mixed views on inflation and potential policy changes. Although none of them are voting members this year, their remarks could still provide a pretty good picture of how the committee stands.
Chicago Fed President Evans is one of the more dovish members of the bunch as he has consistently warning about the dangers of low inflation and even suggesting that there are benefits to letting the CPI overshoot the 2% target.In his speech, he mentioned that the U.S. economy may be at full employment but isn’t really overshooting that level. He said that he expects the economy to grow by 2.5% this year and the next and that tax cuts would boost investment. However, he reiterated that inflation remains a challenge and that a delay in hiking might be warranted.
Dallas Fed President Kaplan is a bit more on the hawkish end. He also has a positive outlook for investment and growth this year, owing mostly to tax reform. Kaplan voted for a hike in December and expressed confidence that three more hikes are in the cards for 2018.
Lastly, Fed official Bullard who is another dove also cited that growth prospects are looking mighty fine for the year. However, he also pointed out that the inflation miss is starting to become persistent and suggested a shift to price-level targeting framework for the Fed.
Major Market Mover(s):
NAFTA jitters proved bearish for the Loonie as many worried that weaker trade prospects would douse hopes of another BOC hike. Prior to this, the Canadian currency was already on weak footing due to the building permits miss.
USD/CAD popped up from 1.2455 to a high of 1.2583, CAD/JPY is down from 89.74 to a low of 88.50, EUR/CAD recovered to a high of 1.5041, and GBP/CAD is up to the 1.6900 levels.
The Japanese yen took advantage of the risk-off flows as it advanced against most of its higher-yielding peers.
AUD/JPY tumbled to a low of 87.21, EUR/JPY continued to slide from a high of 133.91 to a low of 133.12, GBP/JPY is down to 150.58, but USD/JPY moved mostly sideways around the 111.50 minor psychological mark.
Watch Out For:
- 12:30 am GMT: Australian retail sales (0.4% forecast, 0.5% previous)
- 5:00 am GMT: Japanese leading indicators (rise from 106.5% to 108.7% expected)