News & analysis


The loonie failed to hold onto its marginal gains in yesterday’s session as the risk climate soured and the dollar went bid across the board. Interesting developments from Statistics Canada, who have been reviewing their inflation measures, found that the old CPI basket overstated the drop in inflation pressures. This was highlighted in the immediate aftermath of the pandemic as consumers shifted their spending patterns away from social consumption and non-essential items towards non-perishable foods. Re-adjusting the inflation basket, the statistics agency found that inflation fell only 0.1% in May vs the official -0.4% CPI figurer compared with a year ago. The shifts in data towards new measures of analysing the economy come at a time when the Bank of Canada’s forward guidance and focus on inflation metrics will be key. The latest news by StatsCan may fuel questions for Governor Macklem at tomorrow’s policy press conference. The rate decision is pencilled in for 10:00ET tomorrow with manufacturing sales data for May due prior at 08:30ET. The data calendar is empty for today, however.


The dollar saw a stark turnaround yesterday at around 3pm eastern time as Florida announced further lockdown measures, namely the closure of indoor activities such as restaurants and bars. This comes as 27,000 new cases were confirmed in the sunshine state over the last two days. The move came as a stark reminder to markets that the US economy is still embattled with the outbreak of Covid-19 and equity indices saw a marked turnaround to dive into negative territory. The S&P 500 closed 0.94% on the day, while the NASDAQ index closed down 2.13%, which is more noteworthy considering it’s the only US stock index to post year-to-date gains and break all-time highs this year. Additionally, in yesterday’s session, Trump’s aides ruled out “breaking” the Hong Kong dollar peg as a countermeasure to the new security law. This was widely known to be the case despite the official announcement, mainly due to the fact that by restricting Hong Kong entities access to the dollar the US would be inflicting pain upon itself by limiting its access to a major Asian financial hub. Today, markets are trading in a relatively risk-off mood given yesterday’s dramatic close to the US session, and with the UK GDP print dramatically underperforming expectations, concerns are rife over the global economic recovery. The greenback is only posting losses this morning against SEK and CHF, while sitting relatively flat against JPY. This afternoon, June’s CPI data is released at 13:30BST with Fed speakers scheduled from 19:00BST onwards. However, given the latest focus on lockdown measures being re-implemented in the US, all eyes will remain on the daily Covid data released just after 15:00 BST.


The euro is holding steady in the middle of yesterday’s trading range against the dollar this morning as demand for the greenback is back amid broad risk aversion. Lingering Covid-19 concerns were fueled by a warning from the WHO that the virus probably will not disappear in the coming months, although this is not news for markets. German Chancellor Angela Merkel and Italy’s premier Giuseppe Conte spoke ahead of the EU summit and warned that EU leaders need to deliver a massive response to the fallout of the pandemic. The two shared agreement towards the proposed €750bn recovery plan, heightening expectations for the fiscal stimulus plan and summit on Friday and arguably supporting the euro. Conte earlier stated his government is willing to accept tighter criteria for the package, as a response to a handful of fiscally conservative member states who have demanded certain conditions attached to the funding. The shared currency was further supported by hopeful comments from the German economic ministry on Monday, who said that the economy has passed its turning point and the recovery process is starting. Markets now await the reading of the July ZEW survey results which are scheduled for release at 10:00 BST.


After several days of buoyancy, sterling found itself on the defensive yesterday and has extended its losses after a bad reading for May’s monthly gross domestic product. GDP rose only 1.8% on the month, less than half of the approximately 5% that was widely expected. The recovery pales in significance when compared to the 20% drop seen in April. The disappointing release suggests that some surveys, such as purchasing managers indices, were correct in suggesting the economy had not returned to strong growth in May, although due to the unprecedented circumstances facing the economy high data uncertainty will persist for some time. The slow recovery in May suggested by this data also contradicts the assessment of the Monetary Policy Committee of the Bank of England, which reckoned at its most recent meeting that the recovery in May had been slightly better than previously expected. In response to the news fixed income markets began to price in increasingly aggressive easing from the Bank of England, with yields on two-year UK sovereign debt falling to below those on the equivalent Japanese government debt for the first time.



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