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The sell-off in global equities persisted  on Monday, with the S&P dropping by another 0.49% as investors continued to trim long-exposure to high-yielding assets after new homes sales in the US for November came in on the soggy side of expectations.  Equities reacted positively to comments from FOMC voting member and President of the Minneapolis Fed, Narayana Kocherlakota, when he stated the Fed should do more to stimulate the economy as unemployment remains at elevated levels, but faded into the close as stocks were unable to sustain the rebound.

The Canadian dollar traded heavy against its American counterpart after beginning the day on stronger ground, weighed down by overall risk aversion in financial markets and comments from Finance Minister Flaherty that failed to deviate from recent commentary from Canadian policy makers.  The announcement from Flaherty that the government’s books would be balanced in 2015 did little to boost the Loonie, reiterating he was happy with the recent strength of the US economy, adding that one factor of the CAD’s recent slide has to do with the pace of recovery south of the 49th parallel.  Further confirmation from the government that they are happy with the way USDCAD is trading opened the door for further Loonie sales into the afternoon, with the pair trading above the 1.1100 handle once again.

The overnight trading session in Asia was mixed, although a number of actions have helped European and North American equities react positively as concern around contagion in emerging markets is relieved somewhat.  The Reserve Bank of India unexpectedly raised the overnight repo to 8.0% in its second consecutive time surprising markets with a rate hike, eliciting the sentiment that a similar increase in lending rates would occur when the Central Bank of Turkey holds their extraordinary meeting this evening.  

With the CBT running out of foreign exchange reserves while desperately trying to defend its underperforming currency, the only feasible option at this point is to make the short trade for speculators more expensive, with many analysts expecting a deceive rate hike in the neighborhood of 200-300bps to occur.   The People’s Bank of China also helped assuage the tense sentiment overnight by injecting 150bn Yuan into the interbank market, proactively heading off liquidity concerns before the New Year holiday.  The Shanghai Comp finished its session up by 0.26%, while the Nikkei edged lower by 0.17%.  The EM FX space remains relatively bid ahead of the CBT meeting tonight, with the Indian Rupee, Turkish Lira, Brazilian Real, and South African Rand, up by 0.94%, 0.31%, 0.33%, and 0.31% respectively.

With little in the way of economic data from Europe, positive sentiment from the optimistic developments in the emerging markets has the major bourses well in the green ahead of the North American cross.  With Q4 GDP for the UK coming out in-line with estimates this morning at 2.8%, trading in Cable is muted ahead of the American data docket, with GBPUSD changing hands flat from yesterday’s close in the high-1.65s, while the FTSE is up by 0.24% midway through its session.

Turning to the North American session, Durable Goods Orders for the month of December were just released, and showed stark misses across the board in all categories, along with the prior month being revised lower.  The headline figure came in with a decrease of 4.3% when compared with November, far lower than the expected 1.8% increase from analysts.  The Nondefense, ex-air category of durable goods orders (a proxy of business capital spending) also showed notable weakness, falling by 1.3% on a m/o/m basis, missing the 0.5% increase which had been expected, with November’s 4.1% increase being downwardly revised to 2.6%.

S&P futures have erased the majority of their overnight gains after the release, however are just managing to cling to a positive tape as markets digest the disappointing numbers.  The Loonie is displaying a slight bid tone after the soft durable goods report, but still remains under pressure ahead of the opening bell as corporates and real money lead the charge in USD demand to push USDCAD into the mid-1.11s.  Yesterday’s pullback managed to give corporates that were naturally short-USD an attractive opportunity to get back into the market, with traders now focusing on another test of Thursday’s highs to see if USDCAD has enough strength to make another leg higher into the 1.12s.    

Looking ahead to the remainder of the North American trading session, Consumer Confidence readings from the Conference Board for the month of January are due out at  10:00am MST.  Expectations are for the print to remain flat from December at 78.1, and a reading that comes in line with the median analyst estimate (or slightly above) would be a welcome development for market sentiment that has been hammered over the last five trading sessions.  Unless there is an outright collapse in Consumer Confidence for January (the recent sell-off in global equities unlikely to be a consideration for this survey), there will be little for the Fed to digest from this number that will alter their tapering course at the FOMC meeting  tomorrow.    

Further reading:

EUR/USD Jan. 28 – Slight Losses Ahead of Key US Numbers

Heavy losses to emerging market currencies