Analysts at TD Securities explained that market sentiment was upbeat after China announced plans to reduce import tariffs.
Key Quotes:
“The S&P 500 rallied 0.8% to a new high while the TSX rose by 0.4%. Things were quieter in rates with Treasuries flattening on a modest rally in the long-end while Canadian yields edged slightly higher.
The USD posted a broad decline against G10 FX with NZD (+1.1%) leading the advance after strong GDP. GBP (+1.0%) and EUR (+0.9%) also saw large gains despite a raft of conflicting opinions at the EU leaders’ Brexit luncheon while dovish messaging weighed on NOK (+0.1%) after the Norges Bank hiked rates. With little to note on the regional data calendar, we turn to top-tier Canadian data in the North American session.
What We’re Watching in Markets
“USD remains on weak footing since the China tariff announcement despite 10Y yields holding above 3% and trade tensions ensuing. The recent price reaction signifies to us that the USD strength is reaching its limits. However near-term we expect CAD to remain under pressure on NAFTA headlines with no deal in sight this week despite news of US concessions on procurement, along with NOK after Norges’ dovish signal on tightening.
Focus will turn increasingly toward domestic drivers in the US with more data on tap and the September FOMC next week. We maintain the view that the recent backup in yields as overdone without a more explicit hawkish signal from the Fed or a significant deescalation in trade tensions.
US 10s failed to hit 3.10% despite concerted selling in the early part of the North American session, and we will be looking to see if yields consolidate around current levels.”
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