As North American traders return to their desks after the Labour Day holiday, sentiment is on the upswing, with global equities reflecting a sanguine outlook towards the investment climate. The Shanghai Composite managed to stifle a string of four consecutive losing sessions to finish higher by almost 3%, while the People’s Bank of China guided the yuan fix lower for the first time in a week to narrow the gap between onshore CNY and offshore CNH. The optimism permeating throughout financial markets has been aided by mildly positive economic numbers out of China this morning, with the August trade balance numbers showing a higher than forecast surplus. The main catalyst for the wider than expected trade surplus was the smaller drop in exports than had been forecast, with the year-over-year number dropping by only 5.5% in August versus expectations of a 6.0% fall. Moderating the better than expected export data was the fact that imports declined by a faster pace than forecast, sliding by 13.8% as opposed to the 8.2% contraction that analysts had expected. While it is apparent that domestic demand within China is still showing signs of a struggle and raises concerns about stability given the precarious state of the stock market, the healthier than anticipated export numbers reflect stronger global demand, and thus have market participants more willing to rotate away from safe-havens and into higher yielding assets this morning.
While S&P futures are telegraphing price action that could erase all of last Friday’s losses at the opening bell, the one asset class left out of the risk-on rally is the hydrocarbon market. Though front-month WTI has recently seen a bid-tone emerge picking it up from lower overnight levels, Texas Tea is still trading heavy given the quashing of rumors that OPEC and some non-OPEC countries would coordinate efforts to support oil prices. News that Russia would not work with OPEC to cut output put a dent in the commodity yesterday, and it has yet to fully recover as it changes hands around the $45 mark. Despite the softness in WTI as near term supply and demand considerations don’t seem close to reversing, the commodity-linked currencies are putting in gains against the greenback ahead of the opening bell, the best performing developed currencies relative to the big dollar outside of the British pound.
With little in the way of tier-one economic data on the docket today, attention for loonie traders now turns to tomorrow’s Bank of Canada monetary policy decision, the first after the choice to lower rates to 0.5% in July. Since the last meeting there have been some encouraging economic signs that will realistic ease some tensions at the central bank, as non-energy exports and full time employment have both picked up, not to mention the June GDP figures showing an optimistic rebound. While there has yet to be sufficient data to suggest a change in trend is emerging, the encouraging data will likely keep the BoC from slashing rates at tomorrow’s meeting, and instead survey the economic landscape for how the two interest rate cuts of 2015 are filtering through the economy. Additional rate cuts can’t be ruled out of the equation just yet though, as continued pressure on oil prices and stubborn GDP growth in the second half of 2015 could prompt additional easing by the end of the year.
Further reading:
GBPUSD Bounces High for Correction, GOLD looks Weaker Ahead – Elliott Wave Analysis
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