A soggy macroeconomic environment courtesy of mediocre overnight data releases has equity markets on the defensive this morning, with global growth concerns leading investors to rotate away from high-beta asset classes. Additional worries surrounding a hard landing in China cropped up again after Foreign Direct Investment fell by 14% from a year earlier, and the central bank said it sold a net 31.15bn yuan of foreign currency in August, sending jitters through an already shaky market. The suspicions surrounding capital flight from the worlds’ second largest economy after a dramatically disappointing month of August has investors shedding exposure to equities in the region, with the Shanghai Comp down by 1.82% on the day.
The Euro is struggling to make any meaningful headway after the initial sell-off on the heels of further interest rate cuts from the ECB, though the common-currency has managed to halt any further leakage for the time being. The reading on economic prospects in Germany as surveyed by the ZEW institute continues to slide, marking the ninth consecutive monthly decline in optimism and the lowest since 2012. Though a weaker Euro will be a benefit to the export intensive economy of Germany, the political uncertainty surrounding Ukraine and Scotland is too great at the moment, overpowering any hopes of quick acceleration in growth before the political risks dissipate.
Turing our attention to North America, the Loonie has managed to build on yesterday’s relief rally, getting a helpful boost from Manufacturing Sales over the month of July that came in much better than expected, with a 2.5% m/o/m increase. Also aiding downward pressure on USDCAD was the fact that producer prices in the US remained unchanged during the month of August, potentially a precursor to tomorrow’s consumer price figures coming in towards the soft side of expectations. Headline CPI in the US is expected to ease lower to a 1.9% increase on a y/o/y basis, and though the data is probably unlikely to shape the Fed’s discussion that is due out later that day, a print sub 2% would take some of the wind from the DXY’s sails as the urgency surrounding the first rate hike is lessened.
Heading into the opening bell, USDCAD is drifting into the low 1.10s, S&P futures are seeing the bears with a slight upper hand, while WTI sees some give back from yesterday’s rally, currently trading in the mid-$92/barrel range.
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