An overnight session that was filled with disappointing global growth indicators has reinvigorated the notion further stimulus measures from major central banks will be warranted in the future, which in turn has bolstered risk appetite, along with the greenback, as we get set for the opening bell in North America. Also injecting calm into investors’ psyche is that protests in Hong Kong have quieted down for the time being, leading the government to withdraw riot police from the street, though it is expected the situation could escalate again with China’s National Day Holiday right around the corner on October 1st. On the economic front, the final reading for China’s HSBC Manufacturing PMI printed lower than originally forecast at 50.2, leaving market participants betting the government will continue to engage in targeted easing measures even if publically playing down the notion of outright stimulus. As such equities indices in the region have been displaying mixed performance, with the Hang Seng shedding 1.28%, while the Shanghai Comp managed to claw back some of its previous losses to end up 0.26%.
The Euro has taken another leg lower this morning, off almost a full figure after inflation readings for the zone came in as expected, with the headline reading registering only a 0.3% gain over the last twelve months, the lowest annual increase since October 2009. While the further slide in the headline reading had been anticipated, it was the core reading that was principal in the Euro’s morning assault, with the measure dropping from 0.9% to 0.7% and highlighting that it’s not just energy prices that are keeping a lid on consumer prices. Though further policy responses from the ECB at this week’s Governing Council meeting are unlikely, it does increase speculation that depending on the details of the ABS/covered bond purchase program released on Thursday, a smaller ABS program would signal to markets the full-on QE bazooka approach could be right around the corner. EURUSD has moved off its earlier lows after managing to stanch some of the bleeding with supportive bids as the pair hovers around the 1.26 handle midway through the European session.
Heading into the North American open, equity futures look poised to recoup yesterday’s losses, with investor sentiment getting a boost from the potential of continued easy money policies from the ECB. The big dollar is also outperforming on the session, as the DXY is buoyed by proxy of a Euro that is displaying a strong offer tone in the market. The Loonie has also not been able to escape the clutches of a stronger greenback, with weak GDP figures for the month of July adding further fuel to the fire as USDCAD continues to march higher. GDP growth was flat in the month of July, falling short of expectations for a 0.2% increase, though some of the Loonie’s downward momentum was stalled with producer prices in August coming in slightly higher than expected. As we get set for the opening bell USDCAD’s underlying bid tone is seeing the pair make a play for 1.12, with traders likely to focus on the next big pieces of data for the pair which are set to drop on Friday with Trade Balance (Canada) and Employment (US) numbers.
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