Sample Category Title

• North Korea concerns weigh on risk appetite;
• USD struggling at lows as more Fed officials voice inflation concerns;
• BoC may signal another rate hike this year;
• EURUSD approaches 1.20 to the dismay of the ECB.

US futures are almost flat ahead of the open on Wednesday, broadly reflecting the kind of moves seen elsewhere as safe haven flows subside but risk appetite remains weak.

There is clear concern about the escalating tensions between the US and North Korea which has culminated in repeated stints of risk off trading in recent weeks. With the increasingly frequent tests in North Korea triggering such moves, it's making traders a little more anxious than normal and it seems that for now, sitting on the side-lines is preferred.

The verbal back and forth isn't helping matters, although it is having less of a negative impact than it was a few weeks ago. Should the tests in the North and military exercises in the South continue in the coming weeks, it is possible that traders start to pay less and less attention on the belief that this is as far as it will go. For now though, no such confidence clearly exists.

The US dollar's traditional position as a safe haven currency is doing little to support it at the moment. Dovish remarks from three Federal Reserve officials on Tuesday appeared to further drive home the belief that another rate hike this year now looks increasingly less likely. It seems that few voters on the FOMC are still confident that inflation is on the right trajectory and instead a wait and see consensus has been building. With the market implied odds of a rate hike now standing at 37% and Fed commentary now reflective of this, a significant improvement in the inflation outlook may be needed to secure the third hike the central bank previously anticipated.

The only interest rate decision that matters today though is that from the Bank of Canada, which began tightening at its last meeting in July – its first hike since September 2010 – and is expected to do so one more time this year. This meeting may come a little soon though, with investors expecting the central bank to remain on hold for now but they will be keen to hear whether expectations of another are correct. With inflation so far below target, there is good reason for the central bank to leave it at one for now but with the last having also come at a time when inflation was low, it may not act as a deterrent should they wish to go again.

The euro is creeping higher against the dollar again today, moving ever closer to the 1.20 level that is proving tough to overcome. Not only are traders apparently wary of this level but the ECB has shown itself to be as well. I guess we'll find out just how uncomfortable the ECB is tomorrow when it makes its monetary policy announcement and Mario Draghi holds his press conference. September had long been touted as the meeting at which further reductions to asset purchases would be announced but recent remarks would suggest they'll hold off until later in the year before doing so, with the euro rate clearly a concern to them.

Wednesday September 6: Five things the markets are talking about

For investors, looking past North Korea geopolitical concerns, another hurricane bearing down on the U.S and the American debt ceiling looming, there are two central banks decisions that should provide a test for capital markets – there is today's Bank of Canada (BoC) decision (10 am ETD) and tomorrows European Central Bank (ECB) rate announcement and the accompanying press conference.

The BoC rate decision is a coin toss – Canadian policymakers hiked +25 bps in July to +0.75%. Recent consumer, housing and labor-market data also support getting on with hikes. However, the naysayers suggest that some receding in business activity indicators suggest policymakers can afford to take a more standard path of hiking on a quarterly schedule and wait until next month's meeting (Oct. 25) to back up rates again.

Of all asset classes, the euro is likely to react the most to tomorrow's European Central Bank (ECB) policy decision (07:45 EDT).

The 'single' currency strength is hindering the central bank's efforts to drive inflation higher and may prompt the ECB to delay announcing plans to reduce monetary easing. Many expect President Draghi to address the pace of EUR (€1.1936) appreciation during his press conference accompanying the policy decision.

Later this afternoon, the market will focus on Fed's Beige Book for inflation outlook clues (2pm EDT).

1. Stocks remain on the back foot

Global equity markets trade broadly weaker on uncertainty in U.S policy and North Korea's latest nuclear test on the weekend.

In Japan, stocks ended little changed overnight as retail investors' buying in small-to-mid sized stocks offset losses incurred when the market tumbled to four-month lows on heightened tensions in the Korean Peninsula. The Nikkei ended -0.1% lower, while the broader Topix ended +0.1% higher.

In Hong Kong, stocks retreated, mirroring Wall St. as geopolitical worries prompted investors to take profits on this year's +25% rally. The Hang Seng index fell -0.5%, while the China Enterprises Index lost -0.6%.

The Kospi index in South Korea slid -0.3%, as did Australia's S&P ASX 200 when Q2 GDP came in slightly lower than expectations.

In China, stocks dip but reform hopes largely offset N. Korea worries. The CSI300 index fell -0.2%, while the Shanghai Composite Index closed little changed.

In Europe, regional bourses trade largely lower following Asia and Wall St., although the indices trade off the session lows on market jitters ahead of the ECB rate decision tomorrow.

U.S stocks are set to open in the 'black' (+0.1%).

Indices: Stoxx600 -0.3% at 372.5, FTSE -0.5% at 7336, DAX -0.1% at 12110, CAC-40 -0.2% at 5077, IBEX-35 -0.4% at 10141, FTSE MIB +0.4% at 21829, SMI =0.6% at 8817, S&P 500 Futures +0.1%

2. Oil markets subdued by Harvey fallout; gold higher

Ahead of the U.S open, oil is trading with caution, as crude demand and shipments remain subdued due to refinery closures following Storm Harvey and the arrival of an even bigger hurricane in the Caribbean.

Note: With many refineries, pipelines and ports beginning to come back on line, it's expected to take weeks before the U.S petroleum industry is back to capacity.

As of yesterday, approximately 20% of U.S daily refining capacity remained shut, while several other refineries were running at reduced rates.

The markets attention is now shifting towards the massive Category 5 storm Hurricane Irma, which is now in the Caribbean and set to head towards Florida where it could disable other U.S refineries.

Brent crude futures have dipped -8c to +$53.20 a barrel, while U.S West Texas Intermediate (WTI) crude futures were at +$48.69 barrel, little changed from yesterday's close.

Note: Fuel storage data due for release later today by API and EIA tomorrow should give a better view of the extent of Harvey's impact on U.S fuel inventories.

Gold is up for a fifth consecutive day overnight as geopolitical risks over North Korea remain elevated, and as low U.S inflation concerns has left some Fed officials to back delays in further interest rate hikes. Spot gold is up +0.1% at +$1,339.87 per ounce – it touched an intraday high for the month at +$1,344.21 yesterday.

3. Sovereign yields track lower

Geopolitical safe haven demand coupled with insights from two of the most 'dovish' Fed officials yesterday has helped guide U.S 10-year Treasury yields to fresh low yields for the year.

Governor Brainard has urged monetary policy makers to “wait for more realized progress” on the Fed's inflation goal before lifting rates again, while Minneapolis Fed President Kashkari warned that the central bank's tightening cycle “may have harmed the U.S economy.”

Note: Fed speak continues, with regional Fed Presidents Robert Kaplan and Loretta Mester slated to deliver remarks.

10-year Treasury yield dropped -10 bps to +2.07%, while the 10/30 curve spread has widened slightly to +62 bps.

In the U.K, 10-year Gilt yield fell -2 bps to +1.011%, the lowest in more than a week, while German Bund 10-year yield dipped less than -1 bps point to +0.34%, the lowest in more than 10-weeks.

4. Dollar under the weather

The USD price action is moving in tow with lower U.S treasury yield spreads that have been pressured by 'dovish' Fed remarks over the past 24-hours. U.S 2/10 spread has flattened to its lowest level in 12-months. Today's Fed's Beige book (2.00 pm EDT) should give investors an insight on how the Fed is thinking about inflation.

EUR/USD (€1.1940) is +0.25% higher outright as shape of yield curves Euro peripheral countries continued to return to normal levels as anticipation mounts that the ECB will taper–and eventually exit–its QE program. Tomorrow's ECB press conference is expected to shed more light on that.

USD/JPY (¥108.70) is little changed, while GBP (£1.3048) has rallied to a four-week high ahead of the U.S open.

Down-under overnight, the AUD (A$0.7978) briefly held some strength for most of the session before falling back after Australia's Q2 GDP came in slightly lower than expectations (see below).

5. Aussie economy solid in Q2

Despite being lower than expectations, the +0.8%, q/q, and +1.8%, y/y, solidly beat Q1 results.

The headline print should sit well with the RBA's optimism about the economy there. Still, concerns hang over the combination of record-low wage growth and record household debt. The strong Aussie dollar is also a risk to growth.

The solid report prompted Treasurer Morrison to talk up the prospect of an improved deficit compared to forecasts in May's budget. For that year, the Aussie government in May projected a -A$37.6B deficit.

Morrison says a more-conservative approach to forecasting has helped the government surpass market expectations and maintain its AAA credit rating.

Notes/Observations

USD is the most sensitive to moves in the bond market in the whole time history back to the late 1990s

Fed’s Beige looked for on insight on how the Fed is thinking about inflation

Overnight

Asia:

Australia Q2 GDP registered a slight miss (Q/Q: 0.8% v 0.9%e; Y/Y: 1.8% v 1.9%e)

Japan July Real Cash Earnings registers its fastest decline since June 2015 (Y/Y: -0.8% v 0.0%e)

China PBoC performs its 1st injection in reverse repo operation after 4 consecutive skips

Europe:

Britain reportedly plans to end free movement of labor following the Brexit. Intends to decrease the number of lower-skilled EU migrants in its immigration document. All but the most highly skilled workers would have to leave after two years

UK Brexit Sec Davis commented to parliament: Clear both sides in Brexit talks have very different legal stances on Brexit bill: expected argument about Brexit bill to go on for full duration of negotiation

Latest Forsa poll on upcoming German Federal elections: Chancellor Merkel's conservatives (CDU/CSU) seen winning 38% (unchanged); Social Democrats 23% (-1)

German Stern-RTL Poll: CDU/CSU 38%(-1); SPD 23% (unchanged)

Americas:

Fed's Kaplan (moderate, voter) reiterated should be patient on rates. Fed may still raise rates this year, but he wants to see more information..Reiterated wants to get going on the balance sheet. Will be well-served to work down balance sheet so has 'dry powder' for a future crisis.

Fed's Kashkari (dove, voter): Fed rate hikes may have done real harm to the economy; premature Fed rate hikes are not free

US House Majority Leader Mccarthy (R): House to vote on Harvey, debt bill if Senate passes measure

President Trump is sticking with his target of 15% (current 35%) for the corporate rate, even though advisers working on tax reform have told him it's not a workable figure

Trade Rep Lighthizer: no NAFTA issues have been totally completed after two rounds of talks; thinking of terminating NAFTA is not a crazy position but hopes to reach deal that Trump can support

Brazil Attorney General alleges former Presidents and allies took millions of dollars in bribes over a 14-year period which caused $9.0B loss to the national treasury

Energy:

Russia Energy Min Novak: Confirms OPEC and Russia may extend oil output cap if needed; OPEC deal terms may change after Q1

Hurricane Irma: categorized as Cat 5 hurricane and expected to be most powerful Atlantic storm in a decade

Economic data

(DE) Germany July Factory Orders M/M: -0.7% v +0.2%e; Y/Y: 5.0% v 5.8%e

(SE) Sweden July Industrial Production M/M: -0.9% v -0.2%e; Y/Y: 5.3% v 6.5%e

(IT) Italy July Retail Sales M/M: -0.2% v -0.2%e; Y/Y: 0.0% v 1.2%e

Fixed Income Issuance:

(IN) India sold total INR170B vs. INR170B indicated indicated in 3-month and 6-month Bills

(DK) Denmark sold total DKK2.62B in 2020 and 2027 Bonds

(EU) ECB allotted $85M in 7-day USD Liquidity Tender at fixed 1.66% vs $35M prior

(SE) Sweden sold total SEK2.5B vs. SEK2.5B indicated in 2028 and 2032 Bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.3% at 372.5, FTSE -0.5% at 7336, DAX -0.1% at 12110, CAC-40 -0.2% at 5077, IBEX-35 -0.4% at 10141, FTSE MIB +0.4% at 21829, SMI =0.6% at 8817, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes:

European Indices trade largely lower following on from the retreat on Wall Street yesterday, although Indices trade off the session lows on continuing geopolitical worries and jitters ahead of the ECB rate decision tomorrow. Microfocus outperforms after results from HPE, while Home builders Barratt Development and Berkeley group trade lower after results. OCI NV in the Netherlands trade sharply higher after results and naming a new CFO, and Petrofac trades 5% higher after being awarded a significant contract award.

European Autos outperform after being upgraded at Goldman Sachs, with out performance in Daimler.

Looking head into the US morning, retail earnings continue with notable earners including Freds, GIII Apparel and HD Supply.

Equities

Consumer discretionary [Sports Direct [SPD.UK] +2.8% (Trading update), Clas Ohlssen [CLASB.SE] -4% (Earnings), Boohoo [BOO.UK] +4.8% (Analyst upgrade), Straumann [STMN.CH] -2.6% (treasury share sale)]

Industrials: [BAE [BA.UK] -1.1% (UK Seeking to increase competition in Naval shipbuilding business - press), OCI [OCI.NL] +6.7% (Earnings, new CFO)]

Technology: [Wandisco [WAND.UK] -7% (Earnings), Micro Focus [MCRO.UK] +8% (HPE results)]

Healthcare [Vectura (VEC.UK) -11.7% (Earnings, VR410 agreement)]

Energy: [Petrofac [PFC.UK] +4.6% (Contract win)]

Real Estate: [Barratt Dev [BDEV.UK] -3.0% (Earnings), Berekley Group [BKG.UK] -2.4% (Trading update)]

Speakers

ECB's Nouy (SSM chief): EU banks face a series of challenges.Banks must be allowed to fail without disrupting system

EU's Moscovici reiterated view of need to push through economic reforms. EU to unveil internet tax proposal soon

Italy Treasury official 2017 GDP growth could exceed 1.5%

Sweden National Financial Management Authority (ESV) fiscal watchdog) raised its 2017 and 2018 GDP growth forecasts. Raised 2017 GDP growth forecast from 2.8% to 3.1% and 2018 GDP growth forecast from 1.9% to 2.1%

Council of the Catalan Parliament accepted referendum bill for debate

Turkey Dep PM Simsek: Inflation is likely to fall back to single digits in December

Russia President Putin reiterated view that North Korea situation could not be resolved through sanctions and pressure. Discussed North Korea situation with South Korea President Moon; believes joint projects between the two nations will help stabilize the Peninsula

South Korea President Moon: Oil cutoff for North Korea was unavoidable

South Korea Defense Min Han Min-koo: Remaining THAAD missile launchers to be deployed on Thurs, Sept 7th

Currencies

USD price action appears to be moving in line with lower US treasury yield spreads. The US 2-year/10-year yield spread has flattened to the lowest level since September 2016. The greenback failed to respond after the US treasury sold new four-week bills at 1.3% for its highest yield since 2008 as Fed officials appear more subdued inflation. Fed’s Beige being eyed on insight on how the Fed was overall thinking about inflation

EUR/USD higher by 0.25% as shape of yield curves of peripheral countries continued to return to normal levels as anticipation mounts that the ECB will taper--and eventually exit--its QE program

USD/JPY little changed at 108.70 just ahead of the NY morning

Fixed Income

Bund futures trades at 162.59 down 29 ticks, as bund futures gradually edge lower as stocks bounce from the open as new low-delta downside is added in options ahead of ECB meeting. Downside targets 160.50 followed by 160.29. To the upside the 163.75 to 165.00 remains key resistance.

Gilt futures trades at 128.50 down 15 ticks off the session highs as the 7-15year buyback comes into focus. A resumption to the upside could eye 128.71 then 130.10. A move back below 126.51 targets 125.04

Wednesday’s liquidity report showed Tuesday’s excess liquidity rose to €1.780T from €1.776T and use of the marginal lending facility rose to €248M from €106M.

Corporate issuance saw $22.1B come to market via 14 issuers, a new 2017 record for highest number of deals. Apple announced a $5B 4-part note unsecured note offering

Looking Ahead

05:30 (ZA) South Africa Aug SACCI Business Confidence: No est v 95.3 prior

05:30 (DE) Germany to sell €3.0B in 2022 Bob

06:00 (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 1.50%

06:45 (US) Daily Libor Fixing

07:00 (RU) Russia to sell combined RUB40B in 2022 and 2033 OFZ Bonds

07:00 (US) MBA Mortgage Applications w/e Sept 1st: No est v -2.3% prior

07:00 (BR) Brazil Aug FGV Inflation IGP-DI M/M: +0.2%e v -0.3% prior; Y/Y: -1.6%e v -1.4% prior

07:30 (TR) Turkey Aug Effective Exchange Rate (REER): No est v 89.39 prior

07:45 (US) Weekly Goldman Economist Chain Store Sales

08:00 (HU) Hungary Central Bank (NBH) Aug Minutes

08:00 (BR) Brazil Aug IBGE Inflation IPCA M/M: 0.3%e v 0.2% prior; Y/Y: 2.6%e v 2.7% prior

08:05 (UK) Baltic Dry Bulk Index

08:30 (US) July Trade Balance: -$44.6Be v -$43.6B prior

08:30 (CA) Canada July Int'l Merchandise Trade (CAD): -3.3Be v -3.6B prior

08:30 (CA) Canada Q2 Labor Productivity Q/Q: No est v 1.4% prior

08:55 (US) Weekly Redbook Sales

09:45 (US) Aug Final Markit Services PMI: 56.9e v 56.9 prelim, Composite PMI: No est v 54.6 prior

10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.75%

10:00 (US) Aug ISM Non-Manufacturing Composite: 55.5e v 53.9 prior

10:00 (PL) Poland Central Bank Gov Glapinski to hold post rate decision press conference

10:20 (BR) Brazil Aug Vehicle Production: No est v 224.8K prior; Vehicle Sales: No est v 184.8K prior; Vehicle Sales: No est v 184.8K prior; Vehicle Exports: No est v 65.7K prior

11:00 (BR) Brazil to sell 2023 LFT

11:00 (BR) Brazil to sell 2018, 2019 and 2021 LTN Bills

11:30 (BR) Brazil weekly Currency Flow data

14:00 (US) Federal Reserve Releases Beige Book

16:00 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to cut Selic Rate by 100bps to 8.25%

16:30 (US) Weekly API Oil Inventories

The pair is holding within narrow range on Wednesday and consolidating strong fall in past four days which found footstep at 1.2339. Today's BoC rate decision meeting is in focus. Minimum expectations in the markets are for hawkish tone from BoC, regarding to recent strong Canadian GDP data, with 22% chances for another 25 bps hike. Loonie is expected to receive strong boost if the central bank raises rates and may accelerate towards 1.2300 zone which is seen as initial target. On the other side, unchanged BoC may not produce too much thrust to the US dollar, with falling 10SMA (1.2466) and daily Tenkan-sen (1.2501) expected to cap recovery rally. BoC interest rate decision is due at 14:00 GMT.

Res: 1.2415, 1.2466, 1.2501, 1.2552
Sup: 1.2364, 1.2339, 1.2274, 1.2188

The Aussie dollar pulled back from 0.8000 zone which was repeatedly dented in Asia on Wednesday (session high at 0.8020 vs Tuesday’s peak at 0.8028) after Australian GDP miss.

Gross Domestic Product for the second quarter came at 0.8% (q/q) vs forecasted 0.9% while annualized release was at 1.8% vs 1.9% forecast.

However, Q2 numbers are better than in the first quarter which is seen as positive signal.

The pair eased from 0.8000 zone which proves to be strong barrier, dragged by softer GDP numbers, but overall bullish structure keeps bullish bias in play.

Limited dips are expected before fresh attempts higher, with solid supports at 0.7948/44 (rising 10SMA / Fibo 38.2% of 0.7807/0.8028 upleg) which should ideally contain and guard pivotal support at 0.7920 (20SMA).

Final close above 0.8000 barrier is needed to signal further upside which could extend to 0.8165, as previous probes above at the end of July (which resulted in spikes to 0.8065/42) also failed to close above 0.8000.

Alternative scenario sees increased risk of deeper pullback on loss of 0.7920 support.

Res: 0.8000, 0.8028, 0.8042, 0.8065
Sup: 0.7975, 0.7948, 0.7920, 0.7900

The pair stands at the back foot on Wednesday, following previous day's sharp fall which completed 108.60/110.66 corrective phase. Strong bids at 108.50 so far contained attempts lower but recovery attempts are likely to stay limited under 109.00 barrier (hourly Kijun-sen), with extended upticks to be capped by daily Tenkan-sen/10SMA at 109.50 zone. Bears are looking for final break below 108.60 base for test of 2017 low at 108.11 and fresh acceleration lower on break as significant stops lay below 108.00 level. Persisting geopolitical risks keep safe-haven yen favored and expected to further weigh on the pair.

Res: 109.00, 109.32, 109.50, 109.83
Sup: 108.49, 108.26, 108.11, 107.35

Cable is holding firm bullish tone in early Wednesday's trading, following strong rally on Tuesday (0.77% up for the day, the biggest one-day rally since 31 July). Bullish acceleration on Tuesday eventually broke and closed above key barriers at 1.3000 (psychological) and 1.3020 (daily cloud top/Kijun-sen line). This generated strong bullish signal for extension towards next target at 1.3079 (Fibo 61.8% of 1.3268/1.2773 descend and possible further advance on break of the latter. Former key barriers at 1.3020/00 are now reverted to supports which should ideally contain, but deeper corrective dips on overbought daily studies cannot be ruled out. Next good supports lay at 1.2978 (30SMA) and 1.2960 (55SMA).

Res: 1.3044, 1.3079, 1.3100, 1.3151
Sup: 1.3020, 1.3000, 1.2978, 1.2960

The Euro is slightly bid in early Wednesday's trading but showing no clear direction as traders are waiting for the ECB meeting tomorrow.

The pair traded within 1.1900/30 range in Asia, denting daily Tenkan-sen (1.1921) which marks the upper boundary of the action in past two days, entrenched within Kijun-sen and Tenkan-sen lines.

Near-term action is supported by hourly cloud (spanned between 1.1900 and 1.1914) and is expected to maintain bullish bias while holding above the cloud.

Bullish daily studies are supportive, with rising 10SMA tracking the advance and offering immediate support.

However, the pair would likely stay within 1.1900/1.2000 range today, looking for firmer signals from Mario Draghi on Thursday.

With no releases from the Eurozone scheduled today, focus turns towards US data (ISM Non-Manufacturing PMI is due at 14:00 GMT and forecasted at 55.4 in August vs 53.9 in July).

Res: 1.1940, 1.1979, 1.2000, 1.2070
Sup: 1.1914, 1.1900, 1.1868, 1.1839

Daily Pivots: (S1) 129.12; (P) 129.88; (R1) 130.37; More...

Break of 129.65 minor support argues that rise from 127.55 is completed at 131.69. Intraday bias is turned back to the downside for 127.55 support first. Firm break there will indicate near term reversal and deeper fall would be seen back to 122.39/125.80 support zone. On the upside, break of 131.69 is needed to confirm rally. Resumption. Otherwise, we'd expect more corrective price action in near term, with risk of deeper fall.

In the bigger picture, the down trend from 149.76 (2014 high) is completed at 109.03 (2016 low). Current rally from 109.03 should be at the same degree as the fall from 149.76 to 109.03. Further rise is expected to 61.8% retracement of 149.76 to 109.03 at 134.20. Sustained break there will pave the way to key long term resistance zone at 141.04/149.76. Medium term outlook will remain bullish as long as 124.08 resistance turned support holds. However, firm break of 124.08 will argue that rise from 109.03 is completed and turn outlook bearish.

Risk-off sentiment persists, Aussie growth disappoints

Stock market

Global equities tumbled on Wednesday as the uncertainties stemming from the North Korean situation returns. The Japanese Nikkei was down 0.14%, while the broader Topix edged up 0.08%. In offshore China, Hong Kong’s hang Seng was down 0.60% while in Taiwan the Taiex slid 0.66%. The picture is not much brighter in Europe: the Euro Stoxx 50 was down 0.30%, the DAX fell 0.20% and the CAC 40 slip 0.27%.

In spite of this small equity sell-off, demand for safe-haven assets remained subdued. The yellow metal was even edging lower, down 0.20% to $1,337 an ounce. In the FX market, the Swiss franc and Japanese yen were trading sideways. It seems that investors do not where to stands and are becoming increasingly impatient to get out this rollercoaster. Draghi will - mostly likely - unveil the ECB monetary policy plan tomorrow. This should at least reduce uncertainty partially. They will have to wait until September 20 for Yellen.

AUD

The Australian dollar took a hit overnight amid disappointing growth figures. The GDP grew 1.8%y/y, slightly below the 1.9% expected by most economists. On a quarter-over-quarter basis the economy grew 0.8% compared to 0.9% medina forecast. Nevertheless, the jump in growth compared to previous quarter data is quite substantial as the expansion was limited to 0.3%q/q. The only blot in this otherwise encouraging landscape is the drop in household saving ratio from 5.3% in the March quarter to 4.6% in the June quarter, while at the same time household spending increased 0.7%q/q. This raise the question whether the pace of growth is sustainable in the medium to long-term and if not when it will kick back economy growth as Australian start to save money again.

AUD/USD eased as low as $0.7974 this morning before stabilising slightly below $0.80. On the medium-term, the pair is still trading within its multi-month channel (0.7787-0.8066). it should remain so ahead of Draghi and most importantly Yellen in two weeks.

BoC to hike

Watch CAD on BoC meeting today

At today’s Bank of Canada monetary policy meeting we now expected a 25bp hike. The Canadian economy has accelerated for multiple quarters and expectations for rapid rise in inflation will persuade the bank to act now. However, there is a high probability the bank opts to hold to due to high level of household indebtedness and interest to monitor developments at the Fed. Either way we suspect that long CAD short USD would be a solid way to play the current environment. As strong worded comment that indicates further tightening (October if not today) will likely catch the markets behind the curve with only 65bp of hikes priced in until the end of 2018. USDCAD downtrend still in play with break of 1.2414 signaling a bearish extension targeting 1.2128.

Singapore a proxy for solid global growth

Singapore provides a solid barometer for the health of the global economy. In the Monetary Authority of Singapore (MAS) quarterly near-term outlook, called “Recent Economic Developments in Singapore” there is a clear expression of optimism in the outlook for the global and domestic economy. In particularly the bank highlighted sustained momentum in electronic industry. The MAS stated, “firm external demand conditions, coupled with the upturn in the global IT cycle, will continue to impart positive spillovers.” The MAS report revised higher G3 growth projections for both 2017 and 2018 to 1.9% from 1.8% in June. Despite negative geopolitical headlines clouding the markets outlook (North Korea a primary disturbance to investors risk appetite), according to the MAS conditions remain positive. Slow and steady global growth continues to support demand for EM currencies in the near term.