Morning Commentary: A September to Remember

Foreign Exchange - Morning Commentary
A September to Remember
Share this story:
Facebook
Twitter
LinkedIn
Email
Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
As markets return on the first week of September, uncertainty remains the key theme.  Case in point, the UK is headed into the most critical period since the 2016 referendum, and the US and China can’t agree on a date for its next round of talks.  As a reminder, the US’s most recent round of tariffs are kicking in this weekend, and China plans to file a complaint with the WTO.

All of this uncertainty matters as it has been the unifying factor behind the growth downgrades over recent quarters.  After a relatively quiet August, September kicks off a wave of key central bank meetings and how monetary policy evolves to elevated uncertainty will be a key driver for the markets going forward.   
 
Last night, the Reserve Bank of Australia kept rates unchanged at 1.0%, meeting market expectations.  The central bank also kept its conditional forward guidance and stands ready to ease if needed.   As such, the Q2 GDP report later this week will provide an important gauge on the pace of the slowdown this year with the annual growth rate expected to slow.  Longer term, we expect further AUD weakness on a slowing global economy and further RBA cuts. 

Over in Canada, the Bank of Canada (BoC) will announce its next rate decision tomorrow.  Based on market pricing, there is little chance for any rate action.  This makes sense given the solid run of economic data out of Canada.  However, markets will be watching to see how wide the BoC will open the door for future rate cuts. 

The global economy is decelerating and Canada has over 50% of its GDP tied to trade.  As such, a deceleration in global growth should decelerate the Canadian economy.  With the Canadian economy expected to slow, the BoC will need to ensure that it protects against unwanted tightening.  The Fed has already cut rates in July, and further cuts are expected later this year due to the recent escalation in the US-China trade war.  As the Fed cuts, expect the BoC to be compelled to follow suit and defend monetary conditions in Canada albeit not at a one-to-one pace.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • In the UK, Parliament returns from its recess today and is scheduled to vote on taking over control of business tomorrow.  The voting results are expected to be known today around 2 pm PST.  PM Johnson has indicated he will move to call a snap election should he lose tonight’s vote.  While it’s a complicated and fluid situation, snap elections before October 31 opens the window for more GBP positive outcomes.  However, since Friday’s close, the GBP is the poorest performing G10 currency.
  • Italy appears to have formed a government with 5-Star and PD likely to formally agree to a coalition tomorrow.  Although before that can happen ~100K 5-Star members will take part in an online poll to approve the new partnership.
  • China’s manufacturing PMI surprised to the upside, coming in at 50.4 against expectations for a 49.8 print.  A reading above 50 implies expansion with a reading below 50 implying contraction.
If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447‑4133.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Facebook Twitter LinkedIn Google Plus YouTube
Non-deposit investment products:
Are not FDIC insured,
Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and
Are subject to investment risks, including possible loss of the principal invested.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Unsubscribe from this list  |  Update email preferences
This message has been sent to bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com to your email address book or safe sender list.
Copyright ©2019 City National Bank – All Rights Reserved.
350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071
City National Bank is a subsidiary of Royal Bank of Canada.
TERMS & CONDITIONS  |  PRIVACY STATEMENT
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC
                                                           

Comments

Popular posts from this blog

Are tax hikes coming?