06 December 2011 at 15:17 GMT
Not much action on the day so far as risk appetite has waxed and waned – rising a bit as the European trading session managed to shrug off overnight weakness in Asia but then finding resistance as EU peripheral debt spreads widened a bit from their tightest levels by later in the day in anticipation of the ECB meeting this Thursday and on the EU treaty changes clearly on the way at this Friday’s EU summit.
Bank of Canada maintains policy
The Bank of Canada kept rates unchanged at its meeting today. In its statement, it fretted a worse than expected European recession while noting the strength in the economy of late south of the border in the US. It felt that second half growth in Canada would be a bit stronger than projected a couple of months ago, but said that Canada’s output gap would persist well into 2013. As the statement continued to describe current BoC policy as providing “considerable” stimulus, it was a slightly hawkish statement overall. Still, the bank frets the issue of Canada’s competitiveness due to the loonie’s strength against the greenback.
Chart: USDCAD
USDCAD is in a no man’s land at the lower part of the middle of the range established after retracing to just below 0.9900 before retesting the 1.0500 area in November. Note the trend-line in play here to the downside and the 55-day moving average serving as resistance. Parity is an even more important dividing line to the downside (though flat-line area at 1.0080/1.0100 also rather obvious), while the upside needs a fresh recover through 1.0500 and beyond for further confirmation that we are in a USD bull market.
Odds and ends
The German Factory Orders data for October came out showing massive advances after a string of weak months, making the argument for bearish momentum building in Germany a bit of a tougher sell. But if we look at the few months before this data, it was by far the weakest stretch since early 2009 and other, more forward data like PMI surveys suggest that Germany’s manufacturing sector is weakening.
EURCHF is flirting with the 1.2400 area – transitioning above and below it over the course of today. The relatively elevated levels relative to Euro weakness elsewhere is particularly interesting. The deflationary Swiss CPI data release today suggests that the SNB/Swiss government have the green light to move again soon on the franc, particularly considering the degree to which EU sovereign debt spreads have come in over the last week (less EU strain might mean a higher willingness to act.) Perhaps early next week sees a new push by the SNB and the market might make its move ahead of that timeframe. Their quarterly LIBOR-target setting meeting is up on December 15 – next Wednesday.
Looking ahead
The wait continues for the summit outcome this Friday, and in particular the ECB’s role in any solution. While it is extremely likely that the ECB will cut 25 bps this Thursday to 1.00%, will the ECB announce anything of interest ahead of the summit’s final day?
Watch out for the Australian GDP number for Q3 up in Asia tonight. The last two quarters of growth have been rather anaemic at 1.0% and 1.4% year-on-year levels with Q3 expected in just below 2.0%. With some key commodity prices coming off the boil in Q4, the Chinese growth miracle apparently faltering, and the Australian housing bubble entering full deflation mode, we wonder if Australia risks a much weaker environment than expected next year. For now, the market is content to play every tick in the S&P e-mini and AUDUSD as virtually the same thing, as we discussed yesterday.
Economic Data Highlights
- Switzerland Nov. Foreign Currency Reserves dropped to CHF 229.3B from CHF 245.0B in Oct.
- UK Nov. Halifax House Prices fell -0.9% MoM vs. 0.0% expected
- Switzerland Nov. CPI out at -0.2% MoM and -0.5% YoY vs. +0.1%/-0.3% expected, respectively and vs. -0.1% YoY in Oct.
- Sweden Oct. Service Production out at -0.5% MoM and +2.9% YoY vs. +5.1% YoY in Sep.
- Euro Zone Q3 GDP out at +0.2% QoQ and +1.4% YoY as expected
- Germany Oct. Factory Orders out at +5.2% MoM and +5.4% YoY vs. +1.0%/+1.9% expected, respectively and vs. +2.2% YoY in Sep.
- Canada Oct. Building Permits out at +11.9% MoM vs. +1.6% expected
- Canada Bank of Canada kept rates unchanged at 1.00% as expected
- Canada Nov. Ivey PMI out at 59.9 vs. 55.5 expected and 54.4 in Oct.
Upcoming Economic Calendar Highlights (all times GMT)
- US Weekly API Crude Oil and Product Inventories (2130)
- Australia Nov. AiG Performance of Construction Index (2230)
- UK Nov. BRC Shop Price Index (0001)
- Australia Q3 GDP (0030)