US traders returned to work on Tuesday ready for big changes. For the last few months, negative durable goods sales reports had emerged as a sign of a sluggish US economy which could delay the Fed’s plans to start raising interest rates. Today’s reports, however, signalled a big turnaround, with April sales coming in positive and above expectations, and March numbers being revised sharply upward. This news, along with higher-than-expected US new home sales and consumer confidence, indicates another seasonal upturn appears to be under way. This provided evidence to support comments from Fed Chair Yellen and Vice-Chair Fischer who indicated plans to start raising interest rates later in 2015, at a gradual pace. USD, which had dropped lately, took off again on the durables news as speculation of a significant delay to rate liftoff was crushed. The USD rally was broad based, signalling strength. The big move up in the dollar sent gold and a number of major currencies lower, particularly JPY and EUR, whose central banks are still running QE programs. Meanwhile, AUD and NZD were impacted by the hits taken by metal and agricultural prices; wheat fell by 4.3%. GBP fell the least, as strong UK retail signs helped to cushion the blow. EUR and European indices fell again on the risk that growing political uncertainty could grow into financial and economic instability. The current focus remains on Greece, but there’s a whole list of countries with grievances lining up behind them, including the UK and Portugal, while voters in Poland, Spain and Italy appear in the mood for big change as well. Crude oil also took a big hit today on a combination of the USD rally and the growing realisation that the producer war is just getting started. Brent and WTI both fell about 2.7% while NOK took a nearly 1.5% hit, making it the worst performing major on the day. CAD and Canadian stocks weren’t hit quite as hard, both falling in line with their peer group ahead of tomorrow’s Bank of Canada decision and the kickoff to three days of big bank earnings. With oil prices having rallied strongly up off their lows and Canadian data showing some improvement, the central bank appears likely to hold rates steady again. Bank earnings may depend on whether the negative impact of the oil crash on loans to the energy sector and Alberta real estate outweigh the positive impact of the lower loonie on other regions and the earnings of overseas operations.
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