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US Open Preview – Euro, pound among the worst performers; May’s speech and BoC rate decision in focus
October 24, 2018 12:26 pmVideo
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Here are the latest developments in global markets:
Day Ahead: May to face anxious Tories in Parliament; Bank of Canada to raise rates
Following very disappointing initial IHS Markit PMI figures out of the eurozone, the focus will shift to the US Markit manufacturing PMI due at 1345 GMT. Initial estimates support that manufacturing activities in October weakened in the US mainland too but modestly so, driving the index down to 55.5 from 55.6. While a miss in the data could be dollar-negative, investors might prefer to wait the release of the ISM Manufacturing PMI due next Thursday to confirm any slowdown in case the numbers indeed appear lower. ISM PMIs have a longer history than Markit measures have and have proved to be more market-moving as well.
Separately, the US will issue readings on new home sales at 1400 GMT, while at 1800 GMT, the Beige book delivered by the Federal Reserve will be of more importance given that the FOMC uses the report to decide on interest rates. The book presents theeconomic conditions in 12 Federal districts.
In neighboring Canada, the central bank will be meeting at 1400 GMT to decide on interest rates and investors are widely expecting policymakers to raise rates by 25 bps to 1.75%, marking the fifth rate hike since July 2017. With trade risks having mostly faded after Canada, Mexico and the US finally managed to replace the old NAFTA deal with the new USMCA agreement, policymakers could feel more comfortable to unwind further stimulus as inflation stands marginally above the BoC 2.0% price target and the unemployment rate is currently at the lowest in four decades. Yet the BoC might show some caution about the path of interest rates in the future as wages seem to be weakening in the highly indebted country. In September, permanent workers saw their wages slowing for the fourth consecutive month to reach a growth of 2.17%, a warning sign that consumers might turn more careful on their spending if interest rates continue to rise. Should the Bank raise rates but use a cautious tone on future economic trends and overall downplay the prospects of further near-term tightening, the loonie could lose strength. On the other hand, if policymakers appear positive, probably saying that softness in wage growth is temporary, the loonie may find the opportunity to crawl higher. BoC Governor Stephen Poloz and Deputy Governor Carolyn Wilkins will be holding a press conference at 1515 GMT.
In Brexit news, Theresa May will be privately meeting her Conservative Party at the so-called “1922 Committee” event later today in Parliament, where the British Prime Minister will likely face more criticism instead of appreciation over her Brexit strategy. Recent reports stating that May is willing to drop some of her key Brexit demands including a fixed timeframe for the Irish border and the transition period, angered Eurosceptic conservatives even further, with 46 of them having already sent a letter to demand a no-confidence vote against May according to sources. Note that 48 are required to trigger such a vote. If May faces another showdown today, the pound could come under renewed selling. Otherwise, May’s survival could provide some tailwinds to the currency amid hopes that support for the UK Prime Minister and her Brexit plans could be secured before a potential Brexit agreement is presented to Parliament.
Elsewhere, New Zealand will issue new figures on trade balance at 2145 GMT, while in Norway the central bank is expected to keep rates steady at 0.75%.
In oil markets, the Energy Information Administration is scheduled to publish data on US oil inventories for the week ending October 20 after yesterday’s API oil statement identified the strongest built up in crude stocks since March.
In equities, the earnings season continues, with Microsoft being among companies to deliver results for the third quarter after the US market closes.
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