Despite Michael Lewis’s new book asserting the stock market is rigged due to rise of high frequency trading and the advantage low-latency trading firms have over the average retail investor, the path of least resistance for US equity markets continues to be of the upward variety, with the S&P adding another 0.70% to its valuation yesterday. Even with major event risks like the ECB policy meeting and US Non Farm Payrolls on the horizon, the VIX was clobbered lower to settle near the 13% handle, while the yield on the 10-year US treasury edged higher to 2.76%. The Loonie traded within a tight band for the majority of yesterday’s session, with traders looking ahead to trade balance figures on Thursday, and the employment report on Friday, before considering an outright position one way or the other.
A major earthquake shook the Chilean coastline last night, registering a magnitude of 8.2 and causing tsunami concerns for the coastal areas of Chile. Â While the extent of the damage so far is unknown, the coastline is being evacuated as reports of 1.5m to 2m waves begin to roll in. Â Copper futures saw a large spike on the back of fears around supply disruption from Chile as the quake was centered 86k north-west of the mining area Iquique; however, things have since calmed down, with Teck and Pan Pacific both reporting there were no damages to their copper mines, causing the brown metal to retrace some of its earlier gains.
Turning our attention the UK, the housing market in London is showing no signs of slowing down, with prices surging by 18% on a y/o/y basis, essentially doubling the national average of 9.2% and increasing the gap between the capital and the rest of Britain. Â In addition to the house price data, purchasing manager activity in the construction industry came in slightly below its February reading of 62.6, printing at 62.5 in March. Â The still lofty reading was driven by increased confidence among homebuilders that hit its highest level since January of 2007, despite new business volumes ebbing lower. Â The pair of reports has heated up speculation that the Bank of England may have to pare back some of its incentives under its Help to Buy mortgage program, in order to head off what could potentially be a housing bubble should activity in the sector continue to sizzle. Â The pound is higher against the American buck before the North American open, with GBPUSD firmly in the mid-1.66s, while the FTSE pivots around the unch mark.
As we get set for the opening bell in North America, the ADP employment report was just released, and showed the American economy created 191k private jobs over the month of March.  The 191k new jobs was slightly lower than the median analyst estimate of 195k, but comes marginally above the twelve-month moving average, with gains based across a broad range of business sizes, albeit mostly in the service sector.  The report did little to move the needle on the potential for affect the Fed’s timeline on when rates will rise after QE has been wound down, with equity futures pivoting around unchanged, the DXY pinned at 80.08, and the 10-year yield on US treasuries at 2.78%.  The CAD is slightly stronger against its American counterpart this morning, although USDCAD continues to find support at the 1.1000 handle, ahead of a busy two days of domestic economic data to close out the week.
Looking ahead to the remainder of the week, domestic economic data for the Canadian economy begins to heat up tomorrow with the release of February’s trade balance data. Expectations are that we see a decent pick-up in the value of exports, pulling Canada’s trade balance into a surplus position for the first time since the marginal positive number we saw in March 2013.  The continued trade deficit position that was witnessed in January raises concerns that there are structural issues within the Canadian economy that need to be addressed, as the export sector has materially underperformed given the substantial decrease in the value of the Loonie, and the additional support this was forecast to bring.  We forecast continued struggles with achieving rapid export growth in the coming months, as some of the corporate changes over the last few decades (as export-focused companies positioned to naturally hedge against a stronger Loonie) wreak havoc on taking advantage of the weak CAD and call into question how much a depreciating domestic currency will be able to support growth moving forward.
Make sure to speak with your dealing teams as we enter the latter half of the week, as the ECB policy decision coupled with trade balance figures in Canada are likely to increase volatility in currency markets, potentially giving EUR and CAD traders some attractive opportunities surrounding the releases. Â
ADP Non-Farm Payrolls +191K in March + big revision – USD slightly stronger
ECB policy meeting
ECB policy meeting
