Global equities are in modest retreat mode as we enter the latter part of the week, with risk adverse trading conditions dominating price action after the United States and Europe levied a fresh round of sanctions against Russia. Late yesterday the White House announced they would be imposing new sanctions on a number of Russian firms, and while it doesn’t freeze the companies assets or prevent most transactions, it does prohibit these sanctioned companies from accessing longer-term financing (over 90 days) in US capital markets.  Right now it is unclear as to how much impact this will have on the funding of those sanctioned companies as it doesn’t pertain to what you would consider operational financing, though it has spooked investors that tensions are once again rising between the West and East.
After Chinese GDP growth accelerated for the first time in three quarters, owing largely to greater than anticipated credit growth, credit issues in the region are once again rearing their ugly head. A construction company has warned that it may not be able to repay their RMB400m loan that matures in the next week, and while the aggregate notional amount of the bonds ($65m) is not be any means material for the overall credit market, it does raise the question of how successful Beijing is at achieving its growth target via sustainable means; as a result, the Shanghai Comp finished its session lower by 0.57%.
With a lack of tier one data flow in the Euro-zone, the EUR has been contained to a narrow range throughout most of the overnight session, providing Chancellor Merkel with a relatively calm day in which to perform her 60th birthday celebrations. The important milestone for the German leader has increased rumors that she will elect to step down in the near future, especially given her well documented criticism of the former Chancellor for overstaying his welcome.  Separately, the dreary pace of increase in consumer prices for the month of June in the zone has been confirmed this morning at 0.5%, though coming in right at the flash estimate has elicited little response from traders as EURUSD continues to hold above the 1.35 handle.
The Loonie has managed to hold its ground overnight, with the spike in oil prices on the back of fresh Russian sanctions insulating the commodity-linked currency from losing too much ground to the risk-off atmosphere experienced around the globe.  Given the Bank of Canada’s meeting yesterday and the tweak to their message on risks to the outlook of monetary policy, rising inflation (even if it’s transitory) has pushed the central bank firmly into the neutral gear, removing the slight dovish tinge they emulated previously when considering the downside risks to persistently low inflation. The BoC is now decisively data dependent, though the momentum of the last few months of domestic data has been near stall speed, forcing the BoC to slash its growth targets for the remainder of the year. This makes tomorrows CPI reading all that more important, as a further rise in inflation would leave traders questioning how confident they are in the central banks assessment that these inflationary forces are transitory in nature.
US equity futures are trying to claw their way back from the losses experienced overnight, though the tape still points to a negative opening once the bell is rung on Wall Street. The incoming North American data was less than inspiring, after a rise in home-builder confidence yesterday, both building permits and housing starts in the US economy missed expectations, and fell to four and five month lows respectively. Mitigating some of the challenges with a roll-over in the housing industry, jobless claims fell by another 3k bringing the rolling 4-week average to 309k, inspiring further confidence the labour market is continuing to make strides.  After everything shook out the big dollar has taken a little bit of a hit against it’s crosses, with additional data on investment flows into Canada propping the Loonie into positive territory ahead of the North American open.
Further reading:
EUR/USD: Trading the Philadelphia Fed Manufacturing Index
jobless claims fell
