The dark clouds that hung ominously over financial markets last week are appearing to break, driven ostensibly by calming guidance from major central banks and modestly positive global growth figures to kick off the new trading week. While Chinese GDP figures for Q3 came in at the slowest expansion since early 2009, the slight beat of expectations with a 7.3% annualized print versus the median consensus of 7.2% has helped unruffled some feathers surrounding concerns with global growth, though the initial strength in risk assets has been faded as Asian equities failed to hold on to earlier gains. The Nikkei ceded 2.08% as the bid tone in JPY put downward pressure on the equity index, while the Shanghai Comp wasn’t all that trilled with the regional GDP numbers and saw their index slide by 0.72%. Though the slight surprise in GDP growth for China has protected against another bout of rotation into safe-haven asset classes, the ongoing forecast has not been altered, as government reforms are still expected to act as a headwind for growth into the end of the year and early 2015. While stealth liquidity injections can act as Band-Aid solutions over the short-term; export-driven economies that rely on China as an engine of exponential growth will likely need to pursue diversification strategies to combat a slowing Chinese economy.
Focusing on Europe, with the European Central Bank having started their covered bond-purchase program yesterday and reportedly picking up Spanish, German, and French debt, headlines today suggest that the central bank could be assessing the feasibility of buying corporate bonds on the secondary market. The news of expanding the ECB’s covered bond purchase program to include corporate debt has been the main catalyst to drive risk assets higher during early trading in the European session, with bourses across the Atlantic all well-entrenched in the green. The Euro is displaying a slight offered tone as traders assess how committed the ECB is to saving the zone from triple-dip recessionary figures, and if the covered bond purchase program is just a stop gap before full-blown QE. EURUSD has edged below the 1.28 handle, though the pair has been able to find some supportive bids in the high-1.27s and has halted the slide for now.
Heading into the North American open, equity futures are pointing to a continuation of yesterday’s rally, while oil is generating some buying interest as front-month WTI tries to probe north of $83/barrel. The Loonie is on stronger ground ahead of the Bank of Canada policy meeting tomorrow, finding bids on the back of price action in the S&P and oil. Loonie traders are likely to deal cautiously ahead of the BoC announcement tomorrow, with core inflationary figures holding above the bank’s 2.0% target, though global headwinds and the recent slide in oil prices are likely to be addressed. The weakness in the Loonie could allow Poloz the flexibility to downplay some of the concerns around global growth as Canada becomes relatively more competitive in terms of exports, with the outside risk the statement and press conference are slightly more upbeat than last months’ update.
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