t has been another positive day for stock markets around the world which saw US indices post moderate gains again and indices in continental Europe stage major catchup rallies including a 1.2% gain for the CAC, a 2.6% gain for pain’s IBEX and a 4.1% rally for Italy’s MIB. Sentiment toward US economic prospects remains positive although politics can still have an impact. A tweet from Donald Trump complaining about the cost of a new 747 for Presidential use send Boeing shares down sharply on the open although they recovered all of their early losses and more.
Political risk in Europe appeared to ease as traders recognized the Austrian Presidential election result represents a setback for Euroskeptics and even their win in Italy doesn’t mean the EU project is about to fall apart, it's not that simple to bring about major change. Some progress related to Greece also appeared to help sentiment. This sent gold trading down moderately today as capital continues to leave defensive havens.
Crude oil slipped back a bit in a normal trading correction after four days of strong gains. Late in the day a 2.2 mmbbl drop in US API inventories helped to shore up support once again as it indicates the market situation in the US continues to improve with or without any OPEC deal. Oil may remain active through Wednesday’s DOE reports and through Saturdays meeting between OPEC and non-OPEC producers to nail down non-OPEC production cuts.
The main focus for Asia Pacific trading is on Australia’s GDP report which is expected to show a moderate slowing. AUD has been struggling a bit between yesterday’s mixed RBA statement and today’s GDP figures. JPY may also attract some attention on capital flows as it has been active relative to EUR and GBP overnight. We also could see some positioning ahead of tomorrow;s China trade reports.
The Bank of Canada’s latest interest rate decision is due mid-morning on Wednesday which could have a significant impact on trading in CAD and Canadian stocks. The Bank of Canada is the only central bank of the major resource exporting countries that hasn’t cut interest rates this year. Even though the street is not expecting a cut, lingering speculation the Bank of Canada could go dovish just before the Fed goes hawkish and likely raises US rates next week has been weighing on CAD. In the last week, the loonie has underperformed crude oil because of this risk.
Truth is, the Canadian economy did rebound in Q3 as shown by the recent strong GDP report. In addition Canadian bank earnings were strong and employment growth has exceeded expectations the last two months indicating Canada’s rebound momentum has continued into the fall and can continue to ramp up with oil prices rising and the service sector expanding. So it looks like the central bank will likely maintain interest rates. A neutral to positive tone in the statement comments about the Canadian economy’s direction could take the lid off the loonie, while a cautious to negative tone could keep the pressure on.
There have been no major announcements after the US close today.
Significant announcements released overnight include:
US API crude oil inventories (2.2 mmbbls)
US trade balance ($42.6B) vs street ($41.8B)
Canada trade balance ($1.1B) vs street ($2.0B) vs previous ($4.1B)
US factory orders 2.7% vs street 2.6%
Canada Ivey PMI 56.8 vs previous 59.7
Germany factory orders street 1.6%
Eurozone GDP street 1.6%
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
9:30 am AEDT Australia construction PMI previous 45.9
11:30 am AEDT Australia Q3 GDP street 2.5% vs previous 3.3%
8:30 am GMT UK Halifax house prices street 6.0%
9:30 am GMT UK industrial production street 0.5%
10:00 am EST Canada interest rate 0.50% no change expected
10:30 m EST US DOE crude oil inventories street (1.5 mmbbls)
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