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A day devoid of tier-1 economic data for North America saw stocks slide for the third day in a row, with the S&P losing 0.32% to give up the 1,800 handle, with the cash VIX increasing by 2.25% as hedging was in vogue throughout the session.   The Loonie struggled for most of the trading day, although managed to stem the bleeding after hitting a fresh cycle high earlier in the morning, with WTI moving north of $97/barrel.   Despite the positive movement in oil, copper was treading water and refused to help CAD make its way back from the mid-1.06s, as traders position ahead of the Bank of Canada rate decision later this morning.

The overnight Asian session saw the Aussie get its wings clipped after weaker than expected GDP data for Q3 crossed the wires.   The annualized reading for Q3 saw real economic growth slip to 2.3% from the 2.4% in Q2, far less than the 2.6% economists had been expecting to see as investment in the mining sector continues to wane.   The GDP number could have been a lot worse had net exports and government investment not helped prop up the final figure, as such, we’ve seen the Aussie come under strong selling pressure post release.   The Antipodean currency fell through the 0.9100 handle against the USD after the release, before finding initial support in the low-0.90s.   While the RBA has been reluctant to forecast further easing of monetary policy in the near future, the softer than expected GDP data is consistent with a mild-easing bias, which may be accompanied by a further depreciation in the Aussie if the economic data continues to come in on the soft side of expectations.

An absence of yen weakness overnight was sufficient to bash the Nikkei lower by 2.17% by the time the trading session ended, with USDJPY moving into the low-102s after the head of Japan’s GPIF said they don’t need to look to sell their government bonds immediately to alter its portfolio allocation more heavily towards stocks, and instead could wait until the bonds mature before rebalancing.   The potential to see a lower demand for Japanese equities from the region’s largest pension fund in the short-term acted as a weight on the Nikkei and risk appetite, which in turn is helping the yen gain back some of its recent weakness ahead of the North American open.

Looking towards Europe, equities are marching lower with the Stoxx off 0.5% at the time of writing, unimpressed with a better than expected Final Services PMI number for Eurozone.   The recovery in the common-currency bloc continues to be dual speed, characterized as a dichotomy between the German economy and then everyone else in the zone; German PMI services for November beat with a print of 55.7, while the French and Italian indices showed the weakness in their respective service sectors was greater than previously anticipated.   The EUR is essentially unchanged as we head into the European cross and the North American economic release docket, continuing to pivot below the 1.3600 figure against the USD.

As we head into the North American open, the ADP employment change for the month of November showed that private companies hired more workers than expected during the month, with the reading increasing to 215k while the October print was revised higher from 130k to 184k.   Expectations had been for hiring in the private sector to create 173k more jobs, so the optimistic employment picture in November, combined with a revision to the October number that brings ADP closer in line to what we saw with the BLS Non-Farm Payroll report in October, has markets positioning for the potential to see a stronger than forecast Non-Farm report  on Friday.   With the first look at November employment the US a relatively strong one, USDCAD spiked higher and the DXY went bid on expectations a taper in December is not necessarily off the table, with S&P futures moving lower into negative territory.

On the Canadian side of things, the October trade balance moved back into surplus territory for the first time since March of this year, registering a small surplus of $0.8bn.   This was much better than the deficit of $0.7bn analysts had been expecting, as exports decreased by less than forecast, although the automotive sector in Canada continue to struggle with export volumes down 5.0% over the month of October.   The overall number was not as bad as it could have been; however, the Loonie has been unable to rally in a meaningful fashion as the ADP number and the potential for an earlier taper trump market sentiment.

The Bank of Canada is in the spotlight this morning for Loonie traders, with the interest rate decision and subsequent statement due at  10:00am EST.   Expectations are for the central bank to maintain its overnight lending rate at 1.0%, but traders have been positioning for a slightly more dovish statement from the BoC as headline inflation continues to slide further away from the central bank’s target.   A neutral statement with lower inflation forecasts for the beginning of 2014 will most likely spur rumors a rate cut could be in the cards further down the road, and strike CAD with a well-defined offer tone; while the BoC anticipating a shorter return to normal policy conditions because of a stronger than expected Q3 GDP could leave USDCAD vulnerable to a sharp correction with the market anticipating a dovish slant to the bank’s statement.   The 1.0700 level will most likely see a good amount of selling pressure act as an initial headwind for further USDCAD strength, although the ammo real money sellers have at this point is starting to deplete as corporates have been selling throughout the uptrend in USDCAD.   To the downside, the low 1.06 level will act as the first level of support for any CAD strength on a more hawkish than expected BoC, as hedgers will step in to cover medium term USD payable exposure.

Further reading:

ADP Non-Farm Payrolls jump to 215K – dollar higher

GBP/USD: Two shooting stars in a row – sell opportunity?