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After yesterday’s tragic events in Ottawa where Corporal Nathan Cirillo was fatally wounded outside the National War Memorial by an armed gunman, tensions are easing around further conflict within Canada’s borders.   While the nation’s capital remains on high alert with police still investigating whether the shooter, identified as Michael Zehaf-Bibeau, acted alone, the incident appears to be un-related to the attacks in Quebec earlier in the week.   The motives for yesterday’s shooting are still unknown at this time, though the worry is that with Michael Zehaf-Bibeau being a recent convert to Islam, the tragic event is somehow linked to ISIS.

The overnight session was highlighted by a deluge of purchasing manager survey’s from around the globe, with the headlines generally being positive and stoking risk appetite as we move into the North American open.   The Asian session was a bit rocky with both the Nikkei and Shanghai Comp ending lower by 0.37% and 1.04% respectively, not particularly enthused with the slight increase of China’s Flash Manufacturing PMI from 50.4 to 50.2, as many of the main sub-indices showed slower rates of progression.   While stabilization in the manufacturing sector for October is generally consistent with the moderation of the overall economy, the lack of vigor on the demand side warns the government will likely have to continue with their stealth monetary easing policies.

The lift-off in North American futures is mainly attributable to the positive composite flash PMI reading for the Eurozone which improved to 52.2 from the 52.0 registered in September, and the consensus estimate of 51.7. The better than expected PMI release for the overall zone was underpinned by a rebound in manufacturing activity in Germany, helping to calm nerves that a stumbling manufacturing sector for the zone’s engine of economic growth would drag the area into a triple-dip recession.   The rebound in purchasing manager activity in Germany was slightly marred by a collapse in the French manufacturing sector, which saw the rate of contraction fall back to some of the lowest levels of the year.   So while the Euro is bid against the greenback this morning as EURUSD manages to pull itself up from the low 1.26s, the sub-indices and France’s performance don’t rule out another renewed downturn for the zone, which could lead to the ECB providing more firepower to their current asset purchase program.

Heading into the North American open, weekly jobless claims for the US labour market came in bang-on expectations at 283k, a jump from last week’s 266k, but have pushed the four-week rolling average to the lowest since late 2000.   S&P futures are holding their gains and looking poised to open well in the green when the bell rings, with hydrocarbons also finding a bid on the headlines that Saudi Arabia supplied less oil to the market in September.   After yesterday’s Bank of Canada policy meeting and the tragic events in Ottawa, the Loonie has settled and been confined in a relatively narrow trading range in the mid-1.12s.   Yesterday was a volatile day for the Loonie as the interest rate statement from the BoC was initially interpreted as more hawkish than previous after Poloz dropped the ‘neutral’ reference to interest rates, yet the early rally was quickly faded and USDCAD climbed higher over the afternoon as the Monetary Policy report was deciphered as slightly pessimistic; the MPR deferred the forecast surrounding the closing of Canada’s output gap, and also cautioned that Canada’s export sector was less robust than in previous cycles due to capacity issues.   With little in the way of domestic data into the end of the week, the Loonie is likely to take its cues from equity markets and the performance of WTI; and in an absence of big moves, will likely remained buffered, pivoting the mid-1.12s.

Further reading:

US jobless claims rises to 283K – lowest moving average since May 2000 – dollar higher

Canadian dollar lifted by the BoC; How To Position? – Credit Agricole