News & Analysis


In what was mostly an uneventful day for markets, the loonie strengthened by two tenths of a percent yesterday, a performance that saw it sit in the middle of the G10 pack. Strength was supported by a 5bp move higher across the Canadian yield curve (while US bond markets were closed), and a percentage point rally in oil following news yesterday that Saudi Arabia will extend its production cuts, while Russia plans to reduce exports. The only piece of data released out of Canada was the June S&P manufacturing PMI, which edged down by 0.2 points to 48.8, while the components contained pessimistic news for output, new orders, and employment. That said, the PMI data are based on surveys and have been quite bearish since last summer, whereas the hard data on production, sales, and employment collected by StatsCan have told a far more optimistic story. This potentially explains why USDCAD only moved by about 10 pips on the data. Today, USDCAD volatility is likely to be driven by US releases, with nothing on the Canadian calendar. Of note specifically will be the FOMC meeting minutes, which markets will scour given the implications of the Fed’s last decision to temporarily hold rates. Nonetheless, the events will unlikely be as influential as those on Friday where US and Canadian jobs data are released simultaneously. Both reports will provide the final check on the labour market before the central banks’ next decisions, and as such will be influential for their next steps. Of the two jobs reports, the Canadian one has a greater chance to move USDCAD, which is highly atypical. In this case, it is because a US hike is mostly priced in for July, whereas markets are less certain on the BoC and are thus more likely to reprice the odds. For now though, weak data out of China has seen the loonie trade lower to start the morning session, as traders weigh up the possibility, or lack thereof, for more Chinese economic support to boost growth conditions.


It was a fairly thin session for markets to trade yesterday given the closure of US markets for Independence Day. While there were still fairly big stories for markets to trade outside of the US, such as the Reserve Bank of Australia’s decision to hold rates and news that China’s largest state banks are offering local government financing vehicles loans with ultra-long maturities and temporary interest relief to ease concerns over a credit crunch, these developments had little impact on the broader market. This can be partly explained by traders’ hesitancy to drastically change the market backdrop in the absence of a signal from US equity and Treasury markets, but also due to the fact that these outcomes in fact have fairly short reaching impacts in terms of the global macroeconomic environment. Granted, the RBA’s decision to pause in order to reflect the incoming data increases the credibility of calls for other central banks to take similar actions after the Fed’s June meeting, but we think the RBA is fairly unique in this sense given the increased frequency of their policy decisions. The same caveats can be made for the Chinese developments, as easing credit conditions fall short of the larger fiscal stimulus that markets are still awaiting.

Today’s economic calendar offers up events that are likely to be more influential for traders to act upon. Overnight, China’s private measure of services activity, the Caixin services PMI, showed a sharp slowdown in the services sector. Printing at 53.9 this significantly undershot pre-release expectations of 56.2 and dragged the composite measure down to just 52.5 in June. Whilst this might raise the likelihood that the fiscal taps could be turned on in China down the line, for now the news overnight is leading markets to trade with a risk off tone so far this morning. Accordingly, FX with a high beta to global growth conditions is broadly in retreat this morning, particularly those with greater Chinese exposure.

Meanwhile, later today, the meeting minutes from the Fed’s June meeting will likely draw a lot of attention after the central bank opted for a “skip” at their last meeting and struggled to relay their intentions credibly to markets. Emphasis will be paid specifically to FOMC members’ views on the labour market, which has provided a strong growth signal while simultaneously producing the main source of concern over inflation persistence.


While the dollar broadly softened in yesterday’s more muted trading session, something that stood out was the drift lower in EURUSD back below the 1.09 handle. While the bearish bias in EURUSD was visible throughout the European session, the major break lower took place after European markets closed in even thinner liquidity conditions. The move lower has failed to reverse this morning, although EURUSD has found some support from French manufacturing and industrial production data. Posting significant upside beats across the board this release ran counter the prevailing narrative of a nasty eurozone slowdown taking hold. Admittedly, this is only one reading. But it is likely to be further bolstered by a raft of PMI releases published throughout the course of this morning, prints that are expected to broadly indicate expansion across the bloc.

If this morning’s data delivers as expected, it will provide more support to ECB hawks, whose argument that more monetary tightening would be needed to slow the eurozone economy has been starting to look a little thin of late. And markets will not have to wait long to see this in action, with a packed schedule of ECB speakers coming up today. Whilst most are likely to persist with the hawkish tone that has dominated recent commentary, comments by Villeroy at midday could be worth watching out for. As really the only notable ECB member to make a dovish break from consensus in recent weeks, markets will be looking to see if he doubles down on this position, especially given today’s strong data prints.


In an almost undeterred fashion, the main focus for the UK’s economic news cycle yesterday was the state of the housing market once again. However, with no national data published, it was the turn of analysts to steal the headlines. JP Morgan downgraded their equity outlooks for a swathe of residential housing PLC’s, citing concerns over new home sales in 2024, while RBC’s Bluebay recommended buying UK rates on the bet that the BoE wouldn’t take rates above 5.75% on the risk that doing so would “crater the housing market”. This all took place against a fairly constructive session for UK real estate equities, which led gains on a sectoral basis within the FTSE 350 by rallying 1.6%. This more optimistic view of the UK economy meant that sterling nudged up over the course of yesterday’s session, rising two tenths against the dollar and close to half a percent against the euro. Whether the pound can hold onto these gains today as US traders return to the office, is another question, however. Sterling has dipped marginally in early trading this morning, and with final PMI readings the main UK centric event coming up, price action for the pound is likely to be dictated by events as they develop elsewhere today.



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