It was another soft day for stock markets in Europe and North America with Germany impacted by the widening auto scandal that could be spreading beyond Volkswagen to include BMW. Perhaps the most important news of the day that could set the tone for trading into the weekend has been Fed Chair Yellen’s speech after US exchanges closed. She stepped back from last week’s dovish tone, indicating that the FOMC remains on track toward likely raising the Fed Funds rate this year. She also echoed the comments by FOMC Vice-Chair Fischer that there is a lag to the impact of monetary policy changes and that it is better for the Fed to start sooner and raise rates gradually than wait too long and have to move aggressively. She still expects inflation to climb back toward 2% over time In response, USD has been rallying which is typical of the new trend toward the street responding favourably to hawkish news that we have seen emerge over the last week. Norges Bank surprised the street Thursday announcing another 0.25% interest rate cut, its third since December. The central bank indicated additional rate cuts are possible this year with the oil crash getting blamed for falling growth and reduced investment. It did indicate that the lower currency is helping other export industries. To no surprise, NOK is trading down sharply on this news. What is a bit of a surprise is that CAD has fallen to a much lesser extent, trading more in line with swings up and down in WTI. Why is a Norway rate cut significant for Canada and CAD? Because the last two times Norges Bank cut rates, the Bank of Canada also cut interest rates at its next meeting opportunity as both central banks try to manage the fallout from the oil price crash. The stability of CAD today relative to NOK suggests that traders may be thinking that the Bank of Canada could break this pattern and hold the course at its meeting on October 21st. There are several possible reasons for this: Norway had and still has more room to cut rates than Canada. A year ago, Norway was at 1.50% and has gone down to 0.75% while Canada was at 1.00% and dropped to 0.50%. Canada’s main export customer, the US, is doing relatively well these days, in contrast, Norway is tied more closely to the struggling EU. The Bank of Canada’s next meeting is two days after an election and the central bank would likely want to stay out of the fray. A December interest rate cut in Canada, however, is not out of the question, particularly if the transition toward a more balanced economy remains bumpy. This possibility could weigh on CAD going forward, especially if WTI oil continues to struggle below $50. Looking forward, we could see some activity in Japan and Singapore around data announcements, but for the most part the focus may remain on the Fed through to the weekend. Friday brings speeches from hawks Bullard and George, while Monday brings speeches from doves Evans and Dudley, so the tennis match batting markets around may continue for some time, creating opportunities for trading. Corporate News Nike $1.34 vs street $1.19, sales $8.4B above street $8.2B Economic News Significant announcements released overnight include: Norway interest rate surprise 0.25% cut to 0.75% no change had been expected Taiwan interest rate surprise 0.125% cut to 1.75% no change had been expected Ukraine interest rate surprise 5.00% cut to 22.0% from 27.0% US durable goods orders (2.0%) vs street (2.3%) US durables ex transport 0.0% vs street 0.1% US jobless claims 267K vs street 272K US new home sales 552K vs street 515K US natural gas 106 BCF vs street 98 BCF US Kansas City Fed (8) vs street (6) vs previous (9) Germany IFO business climate 108.5 vs street 107.9 Germany IFO crnt assessment 114.0 vs street 114.7 Germany IFO expectations 103.3 vs street 101.4 Italy retail sales 1.7% vs street 0.8% Sweden consumer confidence 98.7 vs street 99.0 Upcoming significant announcements include: 9:30 am AEST Japan consumer prices street 0.1% 9:30 am AEST Japan CPI ex food and energy street 0.7% 3:00 pm AEST Singapore industrial production street (5.3%) 8:30 am EDT US Q2 GDP update street 3.7% no change expected 8:30 am EDT US Q2 personal consumption street 3.2% 8:30 am EDT US Q2 core PCE inflation street 1.8% 9:15 am EDT FOMC Bullard speaking 9:45 am EDT US flash service PMi street 55.6 10:00 am EDT US UMich consumer sentiment street 86.5 1:00 pm EDT US Baker Hughes drill rig count previous 842 1:25 pm EDT FOMC George speaking CMC Markets is an execution only service provider. 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