U.S. stocks lowered as markets are cautious after last week’s jobs report. Federal Reserve Chairman Jerome Powell speaks this week ahead of the latest Open Market Committee meeting minutes. Powell will testify in Congress tomorrow on monetary policy and the state of the economy. Equities reached a record high last week due to expectations the central bank will lower interest rates by 0.25% at this month’s meeting. Markets have also priced in another rate cut in September; however, the Feds may wait for economic data to show more growth. President Trump criticized the Feds, saying “it does not know what it is doing” and nominated two more dovish candidates to the Board of Governors (Christopher Waller and Judy Shelton). Consumer Prices for June are due Thursday and expecting 0.2% increase from May; Producer Prices are due on Friday.
Canadian dollar highlights:
CAD stable after oil prices were flat with increased geopolitical risks in the Middle East. The Canadian economy has rebounded after stronger than expected GDP for April and business and consumer sentiment rising. Exports also increased in May and resulted in a trade surplus for the first time in ten months. CAD strength is also due to markets expecting the Feds to cut rates this year while the Bank of Canada remains patient. CAD has strengthened over 4% currently this year and Governor Poloz may also be under pressure to cut rates or consider this a sign of economic growth. Housing Starts for June expecting 210K today.
EUR weaker after Germany’s industrial output was lower than expected in May. Markets are cautious about the central bank’s next steps as they are prepared to introduce monetary stimulus due to low inflation and global trade concerns. The European Central Bank is expected to follow the Feds and cut interest rates; meanwhile, board member Benoit Coeure said they could restart Quantitative Easing if needed.
British pound highlights:
GBP under pressure as Tory party members will vote this week to decide Theresa May’s replacement. Boris Johnson is expected to win with Jeremy Hunt second. Tory parliament members are trying to obstruct a no-deal Brexit by October 31. Meanwhile, markets are concerned about a recession and GBP remains defensive. Trade Balance and GDP for May available tomorrow and Financial Stability report available Thursday.