U.S. Dollar Highlights:
USD maintained strength after Brexit talks collapsed and lower oil prices. USD also supported by Federal Reserve Chairman Jerome Powell saying there was no reason why monetary expansion could not continue. Powell also said, “The Fed will use rate cuts, forward guidance, and QE as appropriate”. Markets were concerned about the world’s biggest economy facing a recession; however, the economy is improving. White House trade advisor Navarro said President Trump wants to make a “big deal with China” as trade negotiations will resume later this week; meanwhile, China said they will retaliate over the U.S. placing technology companies on the blacklist. Treasury yields have recovered, but stocks remain in negative territory. Producer Prices for September dropped 0.3% due mainly to the cost of goods and services (the most in eight months). To limit the damage of the trade war on the economy, the Federal Reserve will continue cutting interest rates. Another rate cut is already priced in for the rest of 2019 and the next FOMC meeting will provide some clues if the rate cut cycle will continue in 2020.
Canadian Dollar Highlights:
CAD lower after oil prices drop over 1% and risk sentiment worsens. The ongoing trade war is affecting crude supply and demand, which affects CAD negatively. The U.S. administration also intends to restrict capital flows into China (including investments from government pension funds) and blacklist twenty-eight Chinese companies. Increased trade tensions before the next round of negotiations this Thursday and Friday continue to affect CAD. Meanwhile, Housing Starts for September was 221.2K (higher than expected 200K) and Building Permits increased 6.1% in August (versus -1.5% expected). All eyes on Friday’s Jobless rate for September.
EUR defensive on Brexit news as markets prepare for another extension of Article 50. German Industrial Production increased 0.3% monthly in August (versus 0% expected and after contracting -0.4% in July); however, year over year industrial production dropped by 4.0%. German manufacturing is already contracting, and the Eurozone’s biggest economy is facing a recession. All eyes on the Eurogroup meeting starting today, Brexit developments and the Monetary Policy meeting minutes (available tomorrow).
British Pound Highlights:
GBP defensive after Brexit negotiations broke down with the European Union. German Chancellor Angela Merkel said there will be no Brexit deal unless Northern Ireland is in the customs union “forever”. The Conservative Party will campaign for a hard Brexit and this means a no-deal Brexit is possible if they win. Markets are now preparing for another extension followed by a snap election. Meanwhile, GBP continues weaker due to Brexit uncertainty and political turmoil.