Sentiment towards global equities has managed to rebound from yesterday’s price action, with S&P futures ebbing higher during the overnight session, telegraphing a stronger open that will look to claw back a portion of yesterday’s losses. Like North American equities, the hydrocarbon complex is also managing to cauterize its bleeding, with both WTI and Brent eliciting decent bid tones ahead of the opening bell in North America. The Asian trading session was mixed, which seems to be a theme of late, with the Shanghai Comp charging higher by 1.5% to stem the slide from the previous day, while the Nikkei struggled to follow suit and gave up 0.6%. In an effort to provide adequate liquidity to bolster financial markets, the People’s Bank of China supplied roughly $16.6bn to commercial lenders using medium-term lending facilities which carry below market interest rates. While not a monumental sign of monetary policy accommodation like a cut to the benchmark lending rate, it does highlight the ongoing liquidity struggles permeating through China, and the willingness of policymakers do continue to provide means to juice economic output in an effort to achieve the government’s stated objectives. We continue to expect further accommodative measures put forth by the Chinese governments in the months to come, as policymakers’ battle with an economy displaying signs of stalling out.
The big news on the economic docket today is the European Central Bank meeting, and while policy is not expected to change at today’s meeting, Draghi’s press conference will be closely scrutinized to try and decipher if, or when, the central bank might steer policy in a different direction. It is widely expected that the ECB will at some point alter the balance sheet expansion currently underway in order to provide additional support to the transmission mechanism of monetary policy, however the timing of those potential changes is still uncertain. The fact that Draghi has repeatedly mentioned the flexibility to either expand or extend the current purchase program suggests the ECB isn’t against tinkering with further balance sheet expansion, along with the fact that any developed central bank that has instituted a “QE-like” program has yet to end asset purchases after only one iteration. Market participants will be looking for further clues from the central bank at today’s press conference, which may include questions as to the viability of further balance sheet expansion if not accompanied by additional deposit rate cuts that would increase the universe of assets the ECB would be eligible to purchase. The euro is ebbing lower against the big dollar ahead of today’s announcement, though EURUSD is still well contained within the range carved out this week.
On the North American docket today, market participants will get a look at Canadian retail sales for the month of August. This report comes on the heels of a Bank of Canada rate decision that encompasses commentary that was more dovish on future economic prospects than had been expected, with the central bank cutting both the 2016 and 2017 growth forecasts. Still noting the effects of lower oil prices filtering through the economy, the Bank forecasts the economy will now return to full capacity later in 2017 than originally anticipated, but did note that effects of previous monetary policy action, and the depreciation of the Canadian dollar, are helping the non-resource sectors of the economy show signs of life. The BoC also mentioned that while planned fiscal stimulus would be a benefit for the economy, the follow-through of such action needs to be monitored, and can’t reasonably be counted on at this juncture. Regardless, there was little in yesterday’s statement or press conference that suggested the central bank has changed direction in regards to their outlook for monetary policy, with the bank likely on hold unless consumer spending and/or oil nosedive from current levels. The Bank did note that consumer spending was underpinning a sharper slowdown in Canada, which is way today’s numbers are important going forward; if consumer spending starts to falter while the non-resource export sectors are still trying to find traction, the BoC may be forced to continue with its mini-easing cycle. The only problem is, monetary policy in Canada is starting to near traditional lower bounds.
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