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Canadian market update - Friday November 29, 2019. Risk-off returns after Trump signs bill and China may retaliate.

Albert Edwards
by Albert Edwards on November 29, 2019


U.S. dollar highlights:

USD stable after President Trump signed a bill to support protesters in Hong Kong. In return, China said they “will take firm countermeasures, and the U.S. side must bear all the ensuing consequences”. This latest trade development has caused risk-off again and markets will monitor if this affects trade negotiations. Increased tensions will cause USD stronger due to safe-haven status. China accused the U.S. of encouraging the pro-democracy demonstrations in Hong Kong for the past six months. Meanwhile, Trump is still hoping for a Phase One deal, despite an angry response from Beijing. After a positive revision in economic growth for Q3, stocks reached record highs. All eyes remain on trade developments.

Canadian dollar highlights:

CAD defensive after U.S. crude oil inventories increased to 1.6 million barrels and production increased to 12.9 million barrels per day. After OPEC confirmed they would extend cuts during the next meeting, oil prices rallied to provide CAD support. However, the ongoing trade war has affected demand and oil prices have fluctuated. Meanwhile, Q3 account balance decreased to -$9.86 Billion CAD and the average weekly earnings for September increased 4.0% in September (previously revised to 2.6% in August and the largest gain since January 2011). All eyes on Q3 GDP and Producer Prices for October today.

Euro highlights:

EUR weakness continues after German Consumer Prices in November were 1.1% yearly (versus 1.2% expected). Eurozone economies continue to slow, and Germany narrowly avoided a recession last quarter. Monetary policy is expected to remain accommodating in Q1 2020 to boost the economy. The European Central Bank may also lower the inflation target of 2% and cut interest rates further. Eurozone Inflation Rate for November expecting 0.7% yearly and Unemployment Rate for October expecting 7.5% (same as previous).

British pound highlights:

GBP stronger after the latest YouGov poll results show Prime Minister Boris Johnson’s Conservative party is trending for a majority parliament (and the largest in over three decades). The YouGov survey predicts the Conservatives will take 359 seats (gain of 42) versus only 211 seats (loss of 51) for Jeremy Corbyn’s Labour party. GBP is recovering as markets are more confident Johnson’s Brexit deal will pass and be finalized before the January 31 deadline from the European Union.