News & Analysis


After its intraday high touched near its multi-year highs posted back on January 21st, the loonie was whacked, along with broader risk sentiment, by the resurgence of the US dollar. The Canadian dollar ultimately closed out the session 0.39% lower against the greenback, despite oil closing back above $60. News from Canada was slow yesterday with the loonie instead trading off of broader risk barometers. From the major banks, RBC stated that Canada is likely to fall short of its 2021 immigration target, welcoming an estimated 275,000 new permanent residents as opposed to the target of 401,000. The report cited closed borders, visa processing delays and fewer residency applications already in its estimations. While population growth, driven largely by net immigration inflows, is a major driver of Canadian long-term growth, the expected fall in permanent residents doesn’t come as shocking news for markets considering current conditions. Today, the Canadian data calendar takes a look at January’s CPI data at 13:30 GMT, but the release is likely to have a major market impact considering the Bank of Canada has nailed expectations of rates remaining at the lower bound until 2023. However, inflation readings are rising across most major economies due to various reasons, and may be replicated in Canada’s reading today. Expectations sit at a 0.9% YoY reading, with the average core measure expected at 1.6%.


It was a tale of two halves for FX markets yesterday. Upon the European open, after an Asian session with reduced liquidity due to the Lunar New Year, risk was well bid in markets as the dollar traded lower. However, after returning from a long weekend after celebrating Presidents’ Day, US markets reversed the early morning trading and piled back into the dollar. This move was accompanied by an early rally in US equities and a further steepening of the US yield curve, although US equity indices closed out roughly flat across the board. Little was released in the form of data yesterday, with Kansas City Fed President Esther George being the only notable speaker. While Dallas Fed President Kaplan was due to speak, and was likely to draw attention with his optimistic outlook on the US economy, the event was postponed due to power outages in Houston. Speaking yesterday, George outlined how inflation isn’t a major concern for the Fed at present, despite many analysts expecting an aggressive pick-up in PCE readings over the coming months, while she also stated that rising long-term yields aren’t troubling. The rise in long-term yields, which is notable with the US 10-year now sitting at its highest point since the pandemic at 1.29%, is attributable to an optimistic outlook on the recovery and rising interest rate expectations, according to George. Should the bear steepening of the US yield curve start to tighten financial conditions, however, the Fed may be forced to intervene somehow. Today, the focus remains with the Fed as the latest batch of FOMC meeting minutes are released at 19:00 GMT, with January’s retail sales data expected prior at 13:30 GMT.


The euro failed to benefit from the upbeat eurozone Q4 GDP data and German ZEW Economic Sentiment Index yesterday as a slow vaccine rollout continues to set back expectations for a swift European economic recovery, and the rebound of the US dollar throughout yesterday’s later trading session was of no help for the euro either. Both YoY and QoQ GDP figures printed 0.1% higher than expectations but remained in negative territory as the lockdown measures weighed on activity in the last quarter of 2020. With containment measures being extended into this quarter, the outlook for Q1 2021 GDP does not look rosy either. While Germany kept all lockdown measures in place and the Netherlands even tightened measures further in Q1, adding a curfew to the lockdown, the French government opted for a lighter approach this quarter. Schools and non-essential shops have opened, although shopping malls and restaurants remain closed. Despite France’s effort to limit the economic damage from the lockdown, it will be difficult to stop the economy from contracting in Q1 as the remaining containment measures likely weigh on activity as well. Until the vaccination rollout is at a far enough stage for economies to reopen in the eurozone, the bloc remains fully dependent on the monetary and fiscal stimulus that fortunately has been adequate. In a call between Treasury Secretary Janet Yellen and European Central Bank President Christine Lagarde on Tuesday, Yellen praised the ECB for its swift and decisive response to the pandemic as the policy tools foster growth and job creation in both Europe and the US.


The US dollar rebound caused cable to trade softer yesterday, but sterling remained firm against the euro as narratives supporting the pound remained solid: a brexit trade deal, although narrow, a swift vaccine rollout and doused expectations of negative interest rates by the Bank of England. This morning’s CPI reading showed an 0.7% increase of inflation in January from 0.6% in December, above the no-change consensus, while core inflation held steady at 1.4%. The modest increase in January inflation could reflect the impact of the recent increase in shipping and Brexit-related costs on importer consumer goods prices, as food inflation picked up to -0.7% in January from -1.4% in December while rates for furniture and household appliances jumped to 4.4% and 1.9% respectively from 1.6% and 0.2% in December. CPI readings are likely to continue to edge up in the remainder of this quarter as increased demand and the latest recovery in crude oil markets may take some time to pass onto prices. In the news, the front page of the Financial Times looks at the possibility of UK companies making Covid-19 vaccinations a mandatory clause of employment contracts. UK law firms are drawing up “no jab, no job” employment contracts after the government admitted it was “up to businesses” if they wanted workers or customers to hold vaccination passports. Meanwhile, the Institute for Public Policy Research has urged Chancellor Sunak to “act big” with a £190bn stimulus package, matching Joe Biden’s $1.9trn proposal. This is to avoid a long-term stagnation in the UK economy and comes ahead of next month’s budget. Thus far, Sunak has only committed to spending an additional £40bn, around 2% of GDP.




DISCLAIMER: This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication.