ON DECK FOR WEDNESDAY, SEPTEMBER 23
KEY POINTS:
- Mild risk-on emphasizes vaccine trials over weak data
- Ottawa seeks to hit reset on throne speech day
- Eurozone and UK PMIs disappoint
- US PMIs: to follow Europe lower, or regional gauges higher?
- RBNZ further opens the door to more stimulus
- Heavy day for Fed-speak
INTERNATIONAL
All life revolves around Ottawa, or so local denizens and policy wonks think. That may actually hold true for a day in the absence of further global catalysts today as attention shifts to the Trudeau government’s reset on its agenda against the backdrop of surging COVID-19 cases and various political missteps. Vaccine testing is a positive market driver (J&J), but softer than expected growth signals out of Europe are a market headwind (see charts 3–4). We’ll see if the US follows suit this morning while everybody and their uncles and aunts gets a chance to speak at the Fed. The small/medium sized country comparator for central banks like the Bank of Canada got a bit more dovish information overnight as the RBNZ made it clear it’s not done yet and did so right ahead of next month’s election.
- US equity futures are mildly positive with the S&P500 up ¼%, the DJIA up ¾% and the Nasdaq exchange flat. Toronto is up ½%. European cash markets are up by between 1% (Italy) and 2% (London). Asian markets were mostly flat.
- Sovereign bond yields are little changed across almost all markets but curves in Australia and NZ outperformed partly on the back of the RBNZ.
- Oil prices are up ½% with gold down 1%.
- The USD is little changed with a slightly firmer feel as sterling holds its ground, the euro and related crosses are slightly softer and the weakest crosses are the Mexican peso and A$/NZ$.
The September composite UK PMI fell by 3.4 points to 55.7 as the services PMI sank by 3.7 points and the manufacturing PMI fell by just under a point. That’s the first setback since April.
The September composite Eurozone PMI fell by 1.8 points to 50.1 as services sank back into contraction (47.6, 50.5 prior) while manufacturing accelerated (53.7, 51.7 prior).
Within the Eurozone, France fared worse than Germany. The French composite PMI fell by 3.1 points to fall back into contraction at 48.5 (51.9 consensus, 51.6 prior). That was all due to a move back to contraction in services and manufacturing picked up a bit. Germany’s composite PMI slipped a bit but remains in expansion territory at 53.7 (54 consensus, 54.4 prior) but that masked a return to contraction in services (49.1, 52.5 prior) as the manufacturing PMI increased 4.4 points to 56.6.
The RBNZ held policy measures overnight, but indicated it may introduce a Funding for Lending Program for the banking sector before year-end. It also jawboned negative rates and QE, saying the banking sector is getting better prepared for negative rates and that the central bank would complement the policy tool with added term funding. The NZ curve outperformed overnight and the NZ$ is among the weakest crosses to the USD.
CANADA
Canada’s throne speech will be at 2pmET and PM Trudeau will hold a press conference at about 6:30pmET. See last evening’s note for more (here). Scotia’s Rebekah Young will put out a note on the speech tonight and highlights will be shared in Closing Points. Opposition reaction is likely to be swift and expect more as Parliament reconvenes tomorrow after being prorogued due to the government’s WE Charity scandal and resignation of Finance Minister Morneau.
Charts 1 and 2 update the Canadian national and provincial covid-19 case trends while charts 5–13 update the international trends with figures up to yesterday. Canada is not alone in seeing an uptrend of late.
UNITED STATES
A heavy line up of Fed-speak and data risk is on tap. In light of the European gauges, there may be added reason to think of downside risk to US PMIs this morning but the conundrum lies in the fact that regional US measures like the Richmond, Philly and Empire measures have averaged out to show improvement.
- US Markit PMIs (9:45amET): Little change is expected in September’s readings.
- Cleveland Fed’s Mester (9amET): speaks on payments systems during the pandemic.
- Chair Powell (10amET): speaks on the covid-19 pandemic before the House select committee.
- Chicago Fed’s Evans (11amET): Speaks on the US economy and monetary policy.
- Boston Fed’s Rosengren (12pmET): speaks on the US economy.
- Minneapolis Fed’s Kashkari (1pmET): speaks on public health and the virus.
- Atlanta Fed’s Bostic (1pmET): speaks on communities.
- Fed Governor Quarles (2pmET): speaks on the economic outlook.
- San Fran Fed’s Daly (3pmET): speaks on labour force implications of covid-19.
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