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A quiet overnight trading session worked to the detriment of the carry trade and thus equity performance in Asia as traders refused to increase their exposure to high-yield ahead of the central bank decisions in early European trade.   The Nikkei struggled to keep its head above water before falling by 1.5%, dragged lower by yen strength which has seen USDJPY flirt with losing the 102 handle.

Policy makers from European central banks are once again in the spotlight, with both the Bank of England and European Central Bank releasing monetary policy announcements earlier this morning.   The BoE acted as market participants had expected and decided the current course of monetary policy was optimal, choosing to leave the lending rate and asset purchase facility unchanged at 0.5% and £375bn respectively.   As there was no change in policy, the statement offered little in the way of any new information, although earlier in the session Chancellor Osborne used his autumn statement to upgrade GDP growth to 1.4% this year, up from the 0.6% the Office for Budget Responsibility predicted back in March.   The pound is slightly lower against the USD heading into the North American cross, but volumes have been subdued as the market shrugs off the BoE non-event; the minutes from today’s meeting will be published on December the 18th, and will most likely give further clues as to the future trajectory of monetary policy.

Speaking of policy announcements amounting to non-events, the ECB also decided not to tinker with their key interest rates, leaving the refi-rate at 0.25% and the deposit facility at 0%.   While it had been expected the ECB would refrain from any major changes after last meetings surprise cut, the corresponding press conference from Draghi will be closely watched to determine if the governing council has been tossing around ideas for boosting short-term liquidity.   So far the EUR has managed to recover its earlier losses to regain the 1.36 handle against the USD, as a small upward revision to 2014 GDP and a slight trimming of inflation expectations have EUR bears unimpressed and looking to cover after Draghi comes out of the gate less dovish than expected.

Heading into the North American open, data points on both sides of the 49th  parallel crossed the wires, which on balance lead to a slight “taper-on” feel for equities and other high-beta asset classes.   The second estimate of third quarter GDP came in warmer than expected, printing at 3.6% vs. the median analyst estimate of 3.0% and much better than the preliminary reading of 2.8%.   There is no doubt the headline reading is quite positive, although looking deeper into the numbers does provide a few red flags; personal consumption feel from the original estimate of 1.04% to 0.96%, while the vast majority of the upward revision to the headline came in the form of inventory build as stockpiling added 1.68% to GDP, up from 0.83% in the first estimate.   An increase in inventories is not necessarily a foreshadowing of an epic demise, but in order for them to not act as a drag on GDP for Q4, consumer spending must pick up in order to soak up the excess supply of inventories.

Also a positive for the American economy, jobless claims for the week ending November 24th  dropped to 298k from the 321k registered the previous week, and adds to the constructive ADP employment report from yesterday.   The brighter economic data from the US has buoyed the buck ahead of the opening bell, with the DXY increasing by 0.21% to 80.78 at the time of writing.

As a consequence of the relatively strong data points out of the US, the Loonie’s overnight strength is being threatened, with USDCAD working its way back into the high-1.06s.   A better than expected building permit number for October that saw new permits increase by 7.4% during the month is helping the Loonie fight to hang on to the marginal gains, along with the positive price action we’re seeing in energy as WTI garners a slight bid tone above $97/barrel.   North American equity futures have slipped from their earlier gains to foreshadow a slightly negative open, not all that fond of the better than expected jobless claims data and strong revision to Q3 GDP.

Looking ahead to  tomorrow, the big events on the docket for the North American session will be the employment reports for the month of November in Canada and the US. The Canadian economy is forecast to add another 12k new jobs during the month of November, roughly in-line with the pace of job creation we’ve seen over the last two months.   In addition, the unemployment rate is expected to remain steady from the previous month at 6.9%, the lowest level since December 2008.   A larger than expected creation of jobs during last month would help the Loonie regain some of the ground its lost over the past week, although the bigger driver for USDCAD (unless there is a material deviation from analyst expectations in Canadian payrolls) will be the employment report out of the US.

As one of the major determining factors into what the Fed dictates as the right pace of asset purchases to support the American economy, the Non-Farm Payrolls report is the highlight of the week in terms of tier-one North American data.   After the stronger than expected ADP report for November earlier in the week, and the upward revision for October that brings it closer to the NFP number of the same month, speculation has increased that the employment situation in November could be a tad firmer than analysts are expecting.   Should the number top the median analyst estimate, watch for the USD to garner bids as talk of a potential taper in December gets ratcheted up.   Alternatively, anything south of the 180k mark will most likely leave markets optimistic the FOMC will leave the pace of asset purchases unchanged until at least Janet Yellen takes over the reins, which will increase demand for high-beta currencies like the CAD and AUD.

Further reading:

Excellent US data: Q3 GDP revised to 3.6%, jobless claims fall to 298K – USD rises

Draghi’s “no news” is good news for EUR/USD