Risk appetite was the name of the game as most higher-yielders chalked up big gains. The Loonie, however, was unable to join the party due to NAFTA troubles and a crude oil build.
Headlines have also been buzzing about a public row between U.K. PM May and Brexit minister Davis, but pound traders seem to have brushed these jitters off.
- Canadian trade deficit narrowed from 3.9B CAD to 1.9B CAD vs. 3.4B CAD forecast
- Canada’s building permits slumped 4.6% vs. projected 1.0% drop
- Canadian Ivey PMI sank from 71.5 to 62.5 vs. 69.7 forecast
- U.S. non-farm productivity revised from 0.7% to 0.4%
- U.S. unit labor costs upgraded from 2.7% to 2.9%
- U.S. trade deficit narrowed from $47.2B to $46.2B vs. $50B forecast
- U.S. EIA crude oil inventories rose by 2.1M barrels vs. estimated 2.0M drop
- BOE MPC member McCafferty: Investment slowed by Brexit uncertainty
Trade jitters ahead of G7 meeting
It looks like trade war concerns could be the elephant in the room during the upcoming G7 Summit in Canada as the Trump administration showed no signs of backing down from tariffs on U.S. trade allies.
Rumor has it that Treasury Secretary Mnuchin has been pushing for exemptions for Canada, especially while NAFTA negotiations are still ongoing, but White House economic adviser Larry Kudlow said this wasn’t really the case.
Instead, Kudlow clarified that the Donald will be sticking to the tariffs and downplayed the threats of retaliation as a “family quarrel.” He also added that Trump will have a sit-down with Canadian PM Trudeau and French President Macron during the summit this weekend.
Brexit clash on customs backstop
The U.K. parliament is still a mess when it comes to agreeing on a post-Brexit plan, with lawmakers arguing over the customs backup plan.
In particular, Brexit Minister David Davis isn’t too happy about May’s backstop proposal, which will tie Britain to the customs union beyond the transition period in 2021 if the Irish border issue still isn’t resolved by then. Heck, the disagreement was so heated that there have been speculations that Davis might resign!
Word is that May is looking into a time-limited backstop but this prompted a fresh round of debates since the proposal didn’t specify a date. This makes things more complicated ahead of the vote on the EU withdrawal bill next week, which basically determines whether or not EU laws can still apply in the U.K. by March next year.
So far this doesn’t seem to have caused huge waves among pound pairs as traders might be holding out for more conclusive developments. In any case, be prepared for more volatility Brexit-related headlines before the cabinet showdown next week.
Stocks up, commodities down, yields down
A bit of risk appetite returned during the U.S. session as stocks started off on a shaky note before recovering to positive territory before the closing bell tolled.
- Dow 30 index is up to 25,146.39 (+1.40%)
- Nasdaq rose to 7,689.24 (+0.86%)
- S&P 500 index is up to 2,772.35 (+0.67%)
Gold appears to have coughed up some of its earlier safe-haven wins while crude oil took a hit from a surprise build in inventories. The Energy Information Administration reported that stockpiles grew 2.1 million barrels instead of falling by 2.0 million.
Major Market Mover(s):
The Loonie tossed and turned on NAFTA-related updates but ultimately ended down in the dumps as crude oil oversupply fears lingered. Downbeat Ivey PMI may have also contributed to the decline.
USD/CAD dipped to 1.2861 then rallied back up to 1.2961, CAD/JPY fell to a low of 85.02 from 85.67, EUR/CAD is back up to 1.5253, and AUD/CAD advanced to .9922.
Watch Out For:
- 1:30 am GMT: Australia’s trade balance (0.98B AUD expected, 1.53B AUD previous)
- 5:00 am GMT: Japanese leading indicators (gain from 104.4% to 105.6% expected)