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The U.S. dollar was able to overtake the rest of its forex peers to snatch the lead by the end of the session while the Loonie was close behind thanks to NAFTA positivity and higher crude oil.

Towards the end of the session and after tense negotiations, the Italian government was finally able to unveil its budget plans, although the drama may be far from over.

  • U.S. core durable goods orders up 0.1% vs. 0.4% forecast in Aug
  • Headline durable goods orders rose 4.5% vs. 1.9% consensus
  • U.S. initial jobless claims at 214K vs. 208K forecast, 202K previous
  • U.S. final GDP for Q2 unchanged at 4.2% as expected
  • Final GDP price index also unchanged at 3.0% as expected
  • U.S. preliminary wholesale inventories up 0.8% vs. 0.3% forecast
  • U.S. goods trade deficit widened from $72B to $75.8B vs. $70.6B estimate
  • Fed head Powell: Central bank done with forward guidance, watch data instead
  • Italian gov’t agrees on budget deficit of 2.4% of GDP vs. 1.6% expected

Major Events/Reports:

Mixed U.S. data, yields up

Uncle Sam’s figures actually came in a mix of green and red, but dollar traders seemed to focus on the upside surprises.

In particular, headline durable goods orders posted an impressive 4.5% gain versus the expected 2.9% increase in August while the earlier reading was revised to show a smaller 1.2% decline. Components of the August report revealed that the gains were mostly spurred by orders for transportation equipment.

Stripping off these volatile items yielded a core durable goods orders increase of merely 0.1% versus the 0.4% consensus in the same month. Furthermore, looking only at non-defense capital goods orders minus aircraft shows a 0.5% drop mostly due to lower purchase of computers and electronic products.

Meanwhile, the goods trade deficit widened from $72 billion to $75.8 billion versus the consensus of a $70.6B shortfall, signaling weaker export activity. Pending home sales sank 1.8% compared to expectations of a 0.2% drop on low inventory, marking its eighth consecutive monthly decline.

Nonetheless, U.S. bond yields were higher by the end of the session:

  • 2-year yield is up 1.2 basis points to 2.8269%
  • 5-year yield is up 1.2 basis points to 2.9563%
  • 10-year yield is up 0.6 basis points to 3.0536%

U.S. equity indices closed in positive territory as well:

  • Dow 30 index was up 54.65 points to 26,493.93 (+0.21%)
  • Nasdaq is up 51.60 points to 8,041.97 (+0.65%)
  • S&P 500 index is up 8.03 points to 2,914.00 (+0.28%)

NAFTA hopes lifted again

Just when it seemed that all hope was lost for a NAFTA deal being signed anytime soon, BOC Governor Poloz shared some positive sentiments.

In his speech about digital technologies at the Atlantic Provinces Economic Council dinner, the BOC head honcho gave a few notes on policy and trade talks. He cited that the central bank will continue to hike gradually to a more neutral level as higher interest rates will be warranted to reach the inflation target.

His meatier remarks came during the Q&A session when reporters mostly asked NAFTA-related questions. Poloz put things in context by saying that Canada’s dependence on the U.S. has been trending lower for the past 15 years but still expressed optimism that an agreement in some form can be reached soon.

Canadian PM Trudeau also maintained an optimistic outlook, telling reporters on his way to a cabinet meeting:

“The Americans are finding that the negotiations are tough because Canadians are tough negotiators, as we should be. But a good, fair deal is still very possible. We won’t sign a bad deal for Canadians.”

Italian gov’t agrees on higher spending

After a lot of back and forth, Italian government officials finally agreed on a 2019 budget deficit of 2.4% of the country’s GDP, much higher than Tria’s 1.6% figure and the earlier 0.8% target.

Both Di Maio and Salvini hailed this as a victory as their insistence to include basic income and tax cuts part of their election promises was granted. However, the budget drama might not be over as the European Commission has yet to approve (or reject) these spending plans next month.

Now this 2.4% budget deficit waaay beyond the spending limits set by Brussels, and my guess is that Italy’s creditors won’t be happy about the country writing checks it can’t cash.

Major Market Mover(s):

USD

The dollar made its way ahead of the pack as U.S. bond yields climbed despite mixed economic data.

USD/JPY advanced from 112.84 to a high of 113.47; USD/CHF rallied from .9702 to a high of .9784; EUR/USD slumped from 1.1719 to 1.1639, and GBP/USD is down to 1.3075.

CAD

The Loonie was also in a good spot, likely drawing some support from higher crude oil prices and upbeat remarks from BOC Governor Poloz.

USD/CAD sank from 1.3082 to a low of 1.3016 but pulled up to 1.3050; CAD/JPY climbed from 86.36 to a high of 87.15; EUR/CAD is down from 1.5303 to 1.5170, and GBP/CAD fell to 1.7048.

Watch Out For:

  • 11:30 pm GMT: Tokyo core CPI y/y (another 0.9% increase expected)
  • 11:30 pm GMT: Japanese unemployment rate (no change from 2.5% eyed)
  • 11:50 pm GMT: Japanese preliminary industrial production (1.5% rebound expected)
  • 11:50 pm GMT: Japanese retail sales (2.2% gain expected, 1.5% previous)
  • 1:30 am GMT: Australian private sector credit (another 0.4% gain expected)