Canada Bank Earnings, Bank of Canada decision, Greece deal and Oil inventories
19:00, 24 May 2016
· By CMC Markets
Positive momentum from yesterday’s North American trading has continued overnight and around to this morning, In Asia, the hang Seng rallied 2.7% while the Nikkei gained 1.5%. In Europe the Dax is up 1.2% with the FTSE up 0.6%. US index futures trading finds the Dow and S&P up 0.4% and the NASDAQ up 0.5%.
Traders continue to view the Fed moving toward an interest rate increase as a positive sign that the US economy is strong and overseas economic risks are fading setting up a positive environment for corporate earnings growth. Increasingly positive sentiment continues to weigh on gold as capital leaves defensive havens for more aggressive positions.
Last night St. Louis Fed President Bullard indicated he sees the US economy at or past full employment. He also suggested the US economy appears to be growing at a 1.6% pace so far in Q2 rather than the 2.0% that had been forecasted. He also indicated the Fed doesn’t have to have a press conference to raise rates, indicating June or July as open for a potential hike (this makes a signal in June for a July hike possible).
Today looks to be a big day for trading in Canada. Yesterday the S&P/TSX Composite bumped up against the 14,000 round number gains in consumer discretionary and financials. Banks were been particularly strong ahead of their earnings season which kicks off today. Bank stocks at or near trend highs indicates high expectations but there’s still a question of what their exposure to the struggling oil sector could mean after National Bank warned on credit provisions a couple of weeks ago. Bank of Montreal has led off with a mixed report, coming in short on earnings but raising its dividend and indicating its core personal and commercial banking business did particularly well. It remains to be seen if that will be enough to meet high expectations or not.
Today also brings a Bank of Canada interest rate decision. While the street is expecting the bank to remain on hold again, I think there’s a small maybe 10% chance of a cut to help the economy through the short-term turmoil and rough patch brought on by the Alberta wildfires, oil sands production stoppages and Fort McMurray evacuation. A surprise cut could send the loonie lower but either way, we could see CAD remain active through the decision.
Action in CAD may also be influenced by crude oil trading. There was a big 5.0 mmbbl drop in API oil inventories tonight and traders may look to today’s DOE report for confirmation or rejection. WTI and Brent are both up about 1.2% this morning but remain stuck below the key $50.00 round number barrier. Today’s report and the reaction to it could give an idea of whether oil is ready to move higher or if its rally is done for now.
Another deal on Greece reached overnight to free up bailout money and move toward debt relief has also been seen as a positive by traders in Europe, resolving for now one of several flashpoints that could cause turmoil in Europe this summer. Following the passage of new reforms in Greece over the weekend, €10.3 billion in bailout funds will be made available in the coming months including €7.5B in the first round. The EU stonewalled the IMF’s call for immediate debt relief again but the two organizations agreed on a multi-year plan toward debt relief for Greece contingent on more reforms to include debt management, reprofiling, profits from ECB purchases and eventual relief. Although a lot can happen between now and the end of 2018, this has been viewed as a step in the right direction at least.
EUR is holding steady on the Greek news while GBP and the FTSE are up slightly on news of a YouGov poll showing Leave and Remain in a dead heat at 41% each with Leave rising 1% and Remain falling 3%. This action shows that even though the rhetoric and cries of impending doom may ramp up over the next several weeks particularly around the upcoming G-7 meeting, fears among traders that a Leave vote could have a negative impact on the UK economy continue to fade.
Overblown hyperbole also continues to be increasingly dismissed with traders completely ignoring recent reports that Standard and Poors thinks GBP could lose its reserve status in a Brexit. This one looks particularly laughable. Not only was GBP a reserve currency long before the EU was even a figment of anyone’s imagination, the reserve basket doesn't change often or easily. Ask China. Anyway, it looks like this race could be really close right to the finish which may keep trading in GBP active over the next month.
Bank of Montreal $1.73 vs street $1.75, 2% dividend increase, personal and commercial banking up 14% over year, positive tone in market environment.
Significant announcements released overnight include:
US API crude oil inventories (5.0 mmbbls) vs street (2.9 mmbbls)
NZ trade balance $292M vs street $25M
Singapore GDP 1.8% vs street 1.9%
Germany IFO bus climate 107.7 vs street 106.8
Germany IFO current 114.2 vs street 113.3
Germany IFO expectations 101.6 vs street 100.8
Announcements due later today include:
8:30 am EDT US advance goods trade bal street ($60.0B)
9:00 am EDT US FHFA house price index street 0.5%
9:45 am EDT US flash service PMI street 53.0
10:00 am EDT Bank of Canada interest rate 0.50% no change expected
10:30 am EDT US DOE crude oil inventories street (2.0 mmbbls)
10:30 am EDT US DOE gasoline inventories street (0.5 mmbbls)
9:00 am EDT FOMC Harker speaking
11:40 am EDT FOMC Kashkari speaking
2:00 pm EDT FOMC Kaplan speaking
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