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Market meltdown overshadows big fertilizer merger

Continuing on from Friday's big selloff‎, stock markets around the world have been crushed to start the week. The Hang Seng fell 3.3% while the Dax is down 2.0%, the Nikkei down 1.7% and the FTSE down 1.5%. Downward momentum has carried through to early North American trading with US index futures down 0.7% to 0.9% and Dow futures trading down about 125 points. 

The mayhem has not been contained to stocks. Crude oil is down 2.0% ‎although WTI has managed to hold $45.00 for now. Needless to say CAD and other resource currencies like NOK and AUD are trading lower this morning as USD continues to climb. Bond prices continue to fall while yields keep creeping higher.

The market rout can be blamed mainly on the usual seasonal volatility kicking in due to a hawkish shift at major central banks. There had a feeling out there, not shared by me but still there, that it would be difficult for the Fed to go hawkishly against the tide when other major central banks were all going dovish. 

Changes in tone from dovish to neutral at the Bank of England (where it looks like Carney overreacted to the Brexit decision) and the ECB (where more stimulus was not even discussed at the last meeting) have had an even bigger impact on trading then mixed messages from Fed speakers as they have been seen as opening the door for the Fed to make a move. Late Friday, 
Fed Governor Daniel Tarullo, who doesn’t speak publicly very often, indicated in an interview that a 2016 rate hike can’t be ruled out even though he remains concerned about low inflation. 

Today is the last day before the Fed's usual pre-meeting blackout, with three speakers set to go. We could see more action around Fed comments with the main focus on Governor La‎el Brainard's comments at 1:15 pm EDT today, also known as THE DOVES LAST STAND. A number of Fed members have crossed between factions lately with the hawkish calls for a rate hike growing louder. Governor Brainard has been among the most steadfastly dovish. She is expected to be out dovish again today, any shift toward neutral could spark more speculation a rate hike could be coming next week.

With the heavy focus on big macro market moves, a huge merger of equals between fertilizer giants Agrium and Potash ‎may not attract as much attention as it normally would. The companies had previously confirmed talks were underway so a lot of expectations had already been priced into the shares. The question now is whether the all-share deal has been in line with what traders were anticipating. ‎

Corporate News

Agrium and Potash have agreed to merge in an all-share deal that is expected to generate $500 million in synergies and boost the combined market cap by $5 billion. 

WestJet Airlines    11 3% increase in August traffic over year outpaces 8.8% capacity increase to boost load factor to 86.5% 

Economic News

Japan machine orders            5.2% vs street 0.3%
Japan machine tool orders        (8.4%) vs previous (19.7%)

Upcoming significant economic announcements include:

8:05 am EDT        FOMC Lockhart speaking
1:00 pm EDT        FOMC Kashkari speaking
1:15 pm EDT        FOMC Brainard speaking 

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