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The Greenback slowed from its earlier slide despite weaker than expected retail sales figures and another drop in U.S. equities. The franc and Kiwi continued to take advantage of dollar weakness while the Loonie got a boost from an upbeat BOC Survey.

  • U.S. headline retail sales up 0.1% vs. 0.7% forecast in Sept
  • U.S. core retail sales down 0.1% vs. 0.4% forecast
  • Empire State manufacturing index up from 19.0 to 21.1 vs. 20.4 consensus
  • U.S. business inventories up by 0.5% as expected, 0.7% previous
  • Italian PM Conte: Cabinet has approved 2019 budget, sent to Brussels
  • U.K. PM May: Britain will not be left in limbo after Brexit
  • BOC Business Outlook Survey: Investment intentions and futures sales to rise
  • New Zealand quarterly CPI up 0.9% vs. 0.7% forecast, 0.4% previous

Major Events/Reports:

U.S. retail sales miss

Americans weren’t in such a spending mood last month as both headline and core retail sales fell short of estimates. The former printed another meager 0.1% uptick versus the projected 0.7% gain while the latter dipped 0.1% instead of rising by 0.4%.

Components of the report revealed that a huge drop in spending in restaurants and bars mostly due to Hurricane Florence led the declines, offsetting a rebound in motor vehicle sales that month.

Removing autos, gas, and building supplies shows some bright spots, with spending on furniture, electronics and appliances notably higher in September.

On a more cheery note, the Empire State manufacturing index beat expectations by jumping from 19.0 to 21.1 versus the projected 20.4 figure to reflect a faster pace of industry expansion. Business inventories came in line with expectations of a 0.5% uptick in August, although the earlier figure was revised to show a higher buildup of 0.7%.

Upbeat BOC survey

Rate hike expectations for the Bank of Canada were revived after the central bank released its Business Outlook Survey for Autumn 2018.

Firms expect sales to increase further and, coupled with capacity constraints, investment intentions also rebounded to high levels. To top it off, price pressures are expected to grow at a faster pace, partly boosted by cost gains from tariffs.

Keep in mind that firms were surveyed prior to the USMCA being signed around the end of the previous month. This suggests that businesses might be even more optimistic with their sales and investment outlook now that the trade uncertainty has been lifted. The survey also noted:

“A majority of firms anticipate strong US growth over the next year, frequently attributing it to tax reforms, higher government spending and a strengthening energy sector.”

With that, market participants might be pricing in a BOC interest rate hike by the time policymakers have their huddle on October 24.

PM May’s speech

It looks like the U.K. government won’t be backing down on its Irish border backstop demands even as the clock is winding down for them to reach a Brexit deal with the EU.

Keep in mind that the EU Summit will be held in the latter part of this week, and many are hoping that both sides could retract their claws in order to shake on a divorce agreement.

In her testimony, PM May reiterated that they won’t agree to “anything that threatens the integrity of our United Kingdom” explaining:

“The EU still requires a ‘backstop to the backstop’ – effectively an insurance policy for the insurance policy. And they want this to be the Northern Ireland-only solution that they had previously proposed.”

No. 10’s spokesperson shared that she has spoken with EU leaders ahead of this summit, including French President Macron, German Chancellor Merkel, and Dutch PM Rutte.

May also reiterated that she wanted to make sure that the temporary customs arrangement would be indeed temporary:

“People are rightly concerned that what is only meant to be temporary could become a permanent limbo – with no new relationship between the UK and the EU ever agreed.”

Stocks down, commodities up

A weak performance in the tech sector weighed on equity indices at the start of the trading week while brewing tensions with Saudi Arabia added to investors’ jitters.

  • Dow 30 index closed 89.44 points down to 25,250.55 (-0.35%)
  • Nasdaq is down 66.15 points to 7,430.74 (-0.88%)
  • S&P 500 index is down 16.34 points to 2,750.79 (-0.59%)

Gold picked up on these safe-haven flows and dollar weakness. Crude oil edged higher on speculations that the rift with Saudi on the disappearance of journalist Jamal Khashoggi might lead to export sanctions.

  • WTI crude oil rose to $71.68 per barrel (+0.48%)
  • Brent crude oil is up to $80.76 per barrel (+0.41%)
  • Gold is up to $1,226.29 per troy ounce (+0.70%)

Major Market Mover(s):

CAD

The Loonie snagged quick gains as BOC tightening expectations were lifted by the Autumn 2018 Business Outlook Survey. Crude oil rebounded on Saudi Arabia tensions as well.

USD/CAD fell from a high of 1.3052 to a low of 1.2954; CAD/JPY found support at the 85.50 area and jumped to a high of 86.07; EUR/CAD sank from 1.5123 to 1.5047, and AUD/CAD is down to .9253.

Watch Out For:

  • 12:30 am GMT: RBA monetary policy meeting minutes (Review their latest rate decision here.)
  • 1:30 am GMT: Chinese CPI y/y (gain from 2.3% to 2.5% expected)
  • 1:30 am GMT: Chinese PPI y/y (dip from 4.1% to 3.7% expected)