News & analysis


The Canadian dollar traded flat in yesterday’s session with little data and a broadly subdued trading session for the G10 space. Oil prices weighed on the Canadian dollar and this looks to continue today as WTI falls from its session highs this morning to trade back below the $39 mark. Yesterday’s data releases saw a 1.83m contraction in payrolls for April, while weekly earnings for employees were C$1112.22 – up 9.1% YoY. Weekly earning in the manufacturing sector grew by 2%, with mining, oil and gas average earnings fell 2.9%. While the wage growth data is positive on the surface, it is likely to fall substantially as slack in Canada’s labour market increases, shifting the negotiating power from the employee to the employer. Additionally, the corresponding wage growth – consumption channel has been clogged by the pandemic, leading to higher savings ratios and de-leveraging intentions. On the whole, this may be the best wage growth figure we see in Canada for some time as the economy fights to recover. More positive headlines were released yesterday as the Canadian Federation of Independent Business released data that showed more small and mid-size firms intended to make capital expenditures in the next three-months. The signs of recovering investment intentions are positive for the recovery, but the growth comes from a low level. Overall, the net level of capex remains disconcerting, especially as it is shown that no loans have been released for large firms in the first month of the government’s new loan scheme as applications take time to screen. The CFIB data shows that 37% of firms surveyed intend to make capital expenditures, with 13.7% intending to increase staffing. There is little scheduled in the data calendar for today, but the loonie is struggling to break into positive territory as concerns linger over the spread of the coronavirus in the US – Canada’s largest trading partner.


Viewed from afar, the US dollar has had an indecisive week with no clear trend. In terms of spot returns, most of the G10 currencies are up compared to Monday, but the dollar enjoyed at least one broad period of strength in the middle of the week as trade and Covid fears soured risk appetite. The Bloomberg Dollar Index, which tracks performance against a broader range of currencies including emerging markets, is practically unchanged compared to the start of the week, with Wednesday’s risk-off rally in the dollar having erased losses made earlier on. The domestic US Covid-19 situation has clearly deteriorated this week, with new cases increasing on average across the nation and several states showing signs of severe outbreaks that may threaten to pressure healthcare systems. In states such as Arizona, South Carolina, Georgia and Texas,  this may mean lockdown measures are re-imposed at some point. Yesterday’s data included solid increases in durable goods orders, and a larger than expected tally of weekly initial jobless claims, which totalled almost 1.5 million. Today at 13:30 BST, personal spending and income data will be released alongside the relevant price index.


The euro closed in the red against the dollar for a second day straight following another surge in US coronavirus cases and worse-than-expected US jobless claims, which sent a signal to markets that the economy may not be recovering as fast as hoped for. In the meeting minutes from June 4 published yesterday, the ECB provided a rationale for the increase in the Pandemic Emergency Purchase Programme (PEPP) and responded to the German constitutional court’s ruling on the proportionality of the Bank’s QE programme. The Bank mentioned low growth and disinflationary pressures as the primary drivers of the decision to increase the size of the PEPP in June. The minutes outlined a disinflationary outlook with an inflation forecast of 1.3% in 2022, well below the ECB’s target. With respect to the court ruling, the minutes contain several explicit references to proportionality. The central bank stated that “the PEPP and the APP were proportionate measures under the current conditions for pursuing the price stability objective, with sufficient safeguards having been built into the design of these programmes to limit potential adverse side effects, including risks of fiscal dominance, and to address the monetary financing prohibition”. This refers not only to the PEPP, but also to the 2015 decision to start the asset purchase programme. The significant worsening of the inflation outlook sent another grim message to markets and was followed by EURUSD coming under renewed selling pressure. This morning, European Commission President Ursula von der Leyen stressed the importance of all EU members agreeing with the stimulus plan in an interview with France Inter radio, and said that a recovery fund deal needs to be agreed on before the summer holidays. Her comments came after EU spokesperson Barend Leyts confirmed that the EU leaders will hold their next meeting on the EU stimulus package and long-term budget on July 17-18. Today will be a quiet day on the eurozone data front, with Italian consumer confidence and economic sentiment data at 10:00 BST being the main release of note.


Sterling traded broadly flat yesterday, managing to stem its losses after weakening to the greenback on Wednesday. Trade negotiations with the EU seemed to suffer a setback after the UK rejected a proposal for the EU to reserve the right to impose tariffs if the UK unilaterally deviates from “level playing field” provisions that are agreed in trade talks. Level playing field provisions were the core of the EU’s negotiating position and a prerequisite for a meaningful trade deal, and so unless a compromise is found the issue has the potential to derail negotiations completely. The market reaction has been muted, which is unsurprising given that falling-outs of this sort have been a regular occurrence since the 2016 EU referendum. Chancellor Rishi Sunak is reportedly waiting to see how the economy responds to the significant easing of lockdown measures this month before deciding if further fiscal easing is needed, with a tax cut one of the mooted measures in the case that consumers remain averse to spending money.



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