TodayThe rally that can’t be stopped appears set for another nice up day for equities, albeit just by a few points this morning. Softer trade data out of China isn’t helping (see below). European and Asian indices were generally higher. US bond yields are down a hair after yesterday’s big jump on CPI data.
Chart of the day is on the C$. We have seen a strong rally in the CAD over the past few days, largely due to dovish Fed talk. But beneath the headlines, the Canadian economic data has actually been very good over the past few months while the US data has continued to soften. The loonie made a new high for the year. The latest advance is supported by both commodities (gold and oil) as well as rate spreads thanks the better data. 2-year spreads are now only 26bps the narrowest they have been since the beginning of 2018. Worth noting in the chart below that last time spreads were at this level the loonie was trading at around 80 cents on the U.S. dollar. In the
chart of the day we have the Citigroup economic surprise index for Canada minus the US. So, a rising blue line means our data is better. It has been impressive, go Canada.
It seems the tariffs are having a bigger impact than anticipated on the Chinese economy. While exports fell expectedly (1.3% vs 2.5% expected), imports fell more than anticipated (7.3% vs 4.5% expected),
pointing to weakness in the Chinese economy. China is expected to report on Monday that growth in the second quarter was the slowest its been in 27 years. In the past, they have ramped up stimulus during periods of slow growth, and the world is hoping for similar news. Chinese manufacturers are struggling with weak demand both at home and abroad, shedding jobs at the fastest pace since the global crisis.
=IF(UK=“No-Deal Brexit”, “Zero-Rates”, “Near-Zero-Rates”)Much like an ex-girlfriend that texts you at an odd hour of the night – usually something along the line of “you up?” – after the two of you have spent what seems like an eternity apart from each other, so too does Brexit come back into relevance in the Americas. The
Bank of England expects it will need to cut interest rates to almost zero after a no-deal Brexit, while repeated delays in the exit could also make a rate cut
necessary. Policy Committee Member, Gertjan Vlieghe, argued in a speech in London overnight that the BoE should be making major changes to its forecasting process and follow other smaller central banks by setting out its best collective guess about how borrowing costs might change. Currently the BoE bases its forecasts on interest rate futures in financial markets, making it “unnecessarily complex” for the central bank to get its message across to companies, investors, and consumers.
Diversion: Who knew there was a professional Cornhole league. Announcers, sponsored jerseys, and
one of the most difficult shots in cornhole. Wow, only on ESPN The Ocho. As the saying goes, “if it’s almost a sport, we’ve got it here.”