- US August retail sales +0.6% versus +0.2% expected
- ECB raises key rates by 25 bps in September monetary policy meeting
- Lagarde: Rates will remain at sufficiently restrictive levels for as long as necessary
- Lagarde Q&A: Some governors would have preferred to pause and wait on more data
- US initial jobless claims 220K versus 225K estimate
- US August PPI +1.6% y/y vs +1.2% expected
- Canada wholesale trade for July 0.2% versus 1.4% estimate
- French finance ministry lowers 2024 GDP forecast to 1.4% from 1.6%
- Atlanta Fed GDPNow estimate for 3Q growth falls to 4.9%
- Trudeau is getting desperate in Canada: Will unveil plans to cut cost of living today
- EIA weekly US natural gas inventories +57 vs +48 bcf expected
- US July business inventories 0.0% vs +0.1% expected
Markets:
- S&P 500 up 0.9%
- Gold up $3 to $1909
- US 10-year yields up 3.8 bps to 4.29%
- WTI crude oil up $1.96 to $90.48
- CAD leads, EUR lags
We've been in the doldrums for awhile but the combination of a Chinese RRR cut, another round of strong US economic data and signals that the ECB is done hiking combined to create some volatility.
China's move was lost in all the other headlines but sentiment around China has materially improved in the past month and that's a good starting point to understanding some of the moves in risk assets and commodities in that time. I highlighted booming met coal prices earlier as one example and oil is another. There was talk of a Lehman Brothers moment in China last month and the country remains opaque but there are signs of stability and the trickle of stimulus measures continues.
As for the ECB, the leak on Monday foreshadowed the hike and it was coupled with language suggesting it was a one-and-done move. Lagarde made sure the door stayed open for further hikes in the press conference and that briefly boosted the euro but the market is finding it hard to believe they will hike again and the euro slid as the day wore on, touching marginally below the June low.
The pound followed the euro down as the market sees a slowing European economy. BOE hike odds for Sept 21 are down to 71% from 75% and there's still a good chance of another hike but the market can see the top and gilts were bid.
The other side of the trade was equally as important as the evidence mounts that the US economy is just fine. Retail sales beat, and initial jobless claims remained low. Since nonfarm payrolls on Sept 1, virtually every US economic indicator has beat estimates.
PPI ran hot too and bonds sold off but -- importantly -- they didn't break recent ranges and the market may be sensing that slowing global inflation may be helpful for the Fed, even with a strong US economy. In any case, the Fed is now far more likely to continue its hiking cycle in 2024 than almost anyone else, while the US economy is the strongest of a slowing bunch.
CAD was able to beat the US dollar on the day as oil rallied again. There was some profit taking after the first touch of $90 oil early in the day but the dip buyers pounced again in a show of strength. We're expecting headlines from Trudeau aimed at 'bringing down the cost of living' any moment.
