alk of fiscal stimulus measures in China and japan including tax reforms and infrastructure spending lit another fire under Asia Pacific stock markets today, particularly in Japan where the Nikkei
soared 7.7% in a big catch up rally. The Hang Seng rose 4.1% as it starts to climb up out of a double bottom.
A growing sense that the worst of the stock market crisis in Asia may have passed has helped to boost other stock markets as well with major indices in Australia and across Europe gaining 1.8%-2.2%, while US indices are up about 1.0% on limited news. European news was mixed today with some UK disappointments. This was offset by Greek July numbers that were surprisingly not as bad as expected particularly given the political and financial turmoil in the country that month.
Commodities have been mixed this morning. Copper continues to climb while crude oil has slipped a bit in normal backing and filling. Currency markets are showing capital flowing out of defensive havens and back into risk markets with gold and JPY in decline.
The Bank of Canada is scheduled to report its decision Wednesday morning local time (Wednesday late evening in Asia Pacific countries). The central bank cut interest rates by 0.25% at its last meeting and is expected to remain on hold this time around. Canada data has been mixed lately. Much was made of the country falling into a technical recession in Q2, but that was before the last rate cut.
More recently improved employment, trade (especially outside resources), and retail sales data suggests the positive benefits of the lower loonie for the broader economy have started to kick in. Plus, inflation continues to run well above 2.0%. Based on this, the Bank of Canada is likely to remain on hold for a while and assess the impact of its two previous rate cuts before considering if any more stimulus is needed.
Today’s stronger than expected Canada housing starts and not as bad as expected building permits also suggest no rate cut but CAD has been falling into today’s decision as it follows a WTI correction downward along with NOK.
A decision to go on hold is unlikely to have much impact on CAD trading which has stabilized as the WTI oil price has rebounded a bit. A surprise rate cut, however, could drive CADUSD down through the base that has been forming near $0.7500 ($1.3320 ceiling for USDCAD
The latest RBNZ decision is scheduled for Thursday morning local time (Wednesday afternoon in North America). After raising interest rates four times last year, the RBNZ cut rates at its last two meetings, is expected to cut by 0.25% this week and to finish giving it all back at its next meeting. In the last month, New Zealand, PMI, trade, retail sales and other data have been soft, so there’s no reason to think it won’t keep cutting back toward 2.50% over the next two meetings.
After a big decline, NZD has been stabilizing of late along with commodity prices. A 0.25% cut may not have much impact. A decision to go on hold could be seen as hawkish and spark a bigger rebound while a surprise 0.50% could get traders wondering how poor New Zealand economic conditions are which could send the kiwi dollar down sharply. NZD has been rallying overnight ahead of this decision on improving sentiment toward its Asia Pacific customers like China but this looks unlikely to stop another rate cut today.
Plus Apple could be active today with its big product launch event.
There have been no major corporate announcements so far this morning.
Significant announcements released overnight include:
Canada housing starts 217K street 190K
Canada building permits (0.6%) vs street (5.0%)
UK BRC shop prices (1.4%) vs street (0.2%)
UK industrial production 0.8% vs street 1.4%
UK manufacturing production (0.5%) vs street 0.5%
UK trade balance (£3.3B) vs street (£1.9B)
Greece industrial production (1.6%) vs street (7.5%)
Greece consumer prices (1.5%) vs street (1.9%)
Australia consumer confidence 93.9 vs previous 99.5
Australia home loans 0.3% vs street 0.8%
Japan consumer confidence 41.7 vs street 40.5
Upcoming significant announcements include:
10:00 am EDT Canada interest rate 0.50% no change expected
3:00 pm BST US NIESR GDP estimate previous 0.7%
1:30 pm EDT Canada to introduce new bank note, coin and stamp to commemorate Queen Elizabeth II becoming Canada’s longest reigning monarch.
9:00 am NZST Thu NZ interest rate 0.25% cut to 2.75% expected
5:00 pm EDT Wed
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