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Stocks drop, currencies rebound as traders await ECB, China and Trump

It continues to be an active week for trading. A big day Tuesday that saw a number of major rallies and breakouts is currencies ran into a setback Wednesday with a number of corrections. These appear to have run their course with the trends that kicked off Tuesday reasserting themselves.

With the exception of the Nikkei which gained 0.9% on a Yen pullback, stock markets are trading lower. US index futures are down 0.1%-0.2% while the FTSE is down 0.6% as the FTSE resumes its recovery. Strong earnings from Netflix have boosted its shares overnight but not the broader NASDAQ, just as positive results from US banks haven't been able to boost the Dow or S&P.. This indicates that overall, the late 2016 market rally already priced in strong results so upside looks limited and the potential for downside surprises higher.

Currency action finds USD back in retreat again with Wednesday's dead cat bounce quickly unravelling. Sterling is on fire again basking in the glow of UK PM Theresa May's Brexit speech earlier in the week. EUR, AUD AUD and NZD are up at a more moderate pace while defensive plays gold and JPY are steady.

CAD, however, is lagging both the rebound of its resource dollar peers, and today's 0.8% rally in WTI crude oil. Oil has stabilized following a 5 million barrel drawdown in API oil inventories with DOE reports due later in the morning. 

The loonie is stuck between a rock and a hard place following yesterday's Bank of Canada meeting and tomorrow's Trump Inauguration. Although Canada's economy has been picking up and the central bank kept rates on hold, Governor Poloz indicated Canada faces high external risks and uncertainty, particularly related to trade.

Because of this, Governor Poloz indicated the Bank stands ready to cut rates if needed to offset the impact of outside developments, a more dovish stance than traders were expecting. The concern is that as a trading nation even though US attempts to change trade flows like renegotiating NAFTA aren't supposed to target Canada, we could get caught in the crossfire or undertow.

‎There are a number of events coming that could keep markets active through the end of the week. First up is the ECB meeting this morning. With the ECB having expended its QE program to December, and a one-time taper coming in April, no changes are expected. Traders are more likely to focus on the Draghi press conference where any comments related to rising inflation, Brexit, Greece, elections and other hot topics could attract attention.

Tonight brings China's quarterly GDP report, plus retail sales and industrial production. Earlier this week China President Xi indicated the economy continues to struggle requiring government support. ‎The results could have a significant impact on the outlook for resource demand and could drive trading action in resource stocks, resource currencies and commodity prices.

Friday brings the long-awaited inauguration of Donald Trump as President of the US. During the campaign he put together a long list of items he plans to do on his first day so he's going to be a really busy guy. Seriously though, markets built in a lot of expectation that everything would go right. Starting tomorrow markets shift from speculating on what he may do to reacting to what he actually does. The inauguration speech may attract particular attention Friday with traders looking for an indication on where the economy lands on his list of priorities and what changes he is likely to pursue first.

Corporate News

Netflix    $0.15 vs street $0.13, revenues $2.48B in line, domestic net subscriber adds 1.93M vs street 1.44M, international subscriber adds 5.1M vs street 3.7M, guides Q1 adds domestic 1.5M below street 1.8M, international 3.7M above street 3.0M  

Canadian Pacific    $3.04 vs street $3.11

Union Pacific    $1.39 vs street $1.33

Economic News

ECB interest rate and QE decision    no changes as expected one time taper to start in April

Australia employment change        13K vs 10K vs previous 39K
Australia full-time            9K vs previous 39K
Australia part-time            4K vs previous 0K
Australia unemployment rate        5.8% vs street 5.7%


Upcoming significant economic announcements include:

1:30 pm GMT        ECB Draghi press conference

8:30 am EDT        Canada manufacturing sales        street 1.0% vs previous (0.8%)

8:30 am EDT        US jobless claims            street 254K
8:30 am EDT        US housing starts            street 1,200K
8:30 am EDT        US building permits            street 1,220K
8:30 am EDT        US Philadelphia Fed            street 15.3 vs previous 21.5

10:30 am EDT        US natural gas                street (242 BCF)
11:00 am EST        US DOE crude oil inventories        street (1.6 mmbbls) 
11:00 am EST        US DOE gasoline inventories        street 2.3 mmbbls

8:00 pm EST        FOMC Yellen speaking
9:00 pm EST        China GDP, retail sales, industrial production

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