Friday’s good momentum in equities only extended to the first part of yesterday’s session, as another bad day for global bonds prompted early gains to be erased. This morning, equity futures mostly point to a flat or slightly negative open, as markets continue to gauge the risk of recession and the consequent impact for rates and global monetary conditions. Today’s calendar in the US includes the release of the Conference Board's Consumer Confidence index. Let’s see if some grim consumer confidence data today triggers another “bad news is good news” reaction from equities. A deteriorating economic outlook which suggests less need for aggressive monetary policy action could allow markets to stabilise. On the central banks’ side, markets are awaiting tomorrow’s speech by Fed Chair Jerome Powell at the Sintra forum.
The Canadian dollar is extending its recovery against the greenback today. The US dollar finished last week below 1.29 support. Follow-through selling yesterday tested the 1.2860 area. With little domestic data to focus on and Friday’s holiday looming, we expect a relatively quiet week for the currency. External drivers—risk appetite, essentially—remain an important factor for the CAD — stock market trends have overshadowed some more supportive factors—a hawkish central bank, a robust economy and relatively firm terms of trade. Observe the USD/CAD chart.
ECB President Christine Lagarde is set to deliver the introductory speech at the Sintra forum this morning, and she will be followed by Chief Economist Philip Lane before attending a press conference in the early afternoon. Expect most of the discussion in Sintra to centre around the risks to the economic outlook and how those can impact monetary policy decisions. Indeed, Lagarde is expected to provide some colour on how seriously the ECB is considering a 50bp rate hike in September in light of recent activity surveys pointing to a rapidly deteriorating picture for the eurozone. We continue to see a EUR/USD return in Q3 more likely.
The pound continues to be unreactive to Brexit-related news. The UK government proposed a bill to unilaterally scrap part of the Northern Ireland protocol yesterday, which will now need to be voted on. There are surely many indications that the pound is largely pricing in this scenario, and markets remain mostly focused on other drivers of UK economic underperformance. The re-pricing lower in BoE’s rate expectations, which are part of a global trend, has helped the pound remain well clear of 1.2000 for now.
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