Global market watch - 14th December 2018
As the US-China trade outlook improved, the dollar’s biggest gains came against the yen with safe-haven demand easing, as China placed new orders for US soybeans. US Treasuries were higher as well, indicating a firming of US interest rates. There is still disagreement over the Mexican wall, and as such, the probabilities of a government shutdown on December 21st are increasing.
After favorable retail sales data coming in at 0.20% v. 0.10% expected, the USD is strengthening quite a bit this morning, up about 0.75% against most major currencies.
There are no major economic events out of Canada today. However, with the favorable US data that was released at 8:30 AM EST, the CAD is weakening and testing the 52-week low against the USD.
Weaker crude oil prices are undermining the Loonie at the moment and providing an additional boost to the USD.
The SNB kept rates unchanged and as usual said that the Swiss franc was highly valued. SNB Chairman Jordan added that the FX market situation was still fragile and that the risks to the Swiss and global economic outlook were on the downside. The euro was a touch softer, after a report that the ECB was going to lower its growth forecasts later in the day. The ECB kept interest rates unchanged, and when ECB President Draghi spoke, he did downgrade the growth forecasts. Furthermore, he announced that the ECB would continue to reinvest the proceeds of their QE program beyond its end. This was a dovish surprise for the market, as the ECB lowered the 2019 growth projection from 1.7% to 1.6% as expected. The EURUSD has been soft since the press conference. This morning the Bundesbank is cutting its German GDP forecast from 2.0% to 1.5% and the euro has already started to fall.
Early yesterday, Brexit Minister Barclay announced that PM May would try to get legal and political assurances on the backstop, additionally stating that “we’re not having another referendum.” However, PM May was yet again humiliated by the EU as a European commitment that if the backstop were ever triggered, “it would only be in place for a short period”, and the promise that the EU “stands ready to examine whether any further assurance can be provided” was taken out of the summit conclusions. These moves came after PM May had personally appealed to the EU to provide legal guarantees that the UK would not be “trapped” in a customs union. In this case the probability of a no deal Brexit has pushed higher again, with some analysts suggesting that the chances of a no deal Brexit or referendum now stand at 50/50.
The People’s Bank of China governor said that monetary policy would continue to be supportive, as China’s economy is facing downward pressure.