Category: Canada

Asset Summary – Tuesday, 13 January

US DOLLAR’s value is facing downward pressure as investors anticipate potential interest rate cuts by the Federal Reserve. Recent inflation data, indicating easing underlying price pressures, has fueled these expectations. Core consumer prices have shown slower growth than anticipated, suggesting a gradual cooling of inflation. This development has led to increased bets on further rate cuts, causing the US Dollar Index to slip below 99. Traders are closely monitoring upcoming Consumer Price Index data for further insights into the Federal Reserve’s future policy decisions, which could significantly impact the dollar’s trajectory.

BRITISH POUND faces a mixed outlook. It recently approached a multi-month high against the dollar as the dollar weakened amid concerns about the Federal Reserve’s independence and potential political pressure. However, UK economic data presents challenges, with employers scaling back hiring due to rising costs and weak sentiment following the autumn budget. Furthermore, markets anticipate a potential interest rate cut by the Bank of England in December due to softer inflation and a cooling labor market, which could weigh on the pound’s value. The pound’s trajectory appears to be influenced by both global factors, particularly the dollar’s performance and US monetary policy, and domestic economic conditions and the Bank of England’s policy decisions.

EURO’s outlook is mixed as it hovers around $1.165, influenced by both US and European economic factors. US inflation data, while supporting potential Fed rate cuts later in the year, is offset by concerns regarding the Fed’s independence and the possibility of only gradual easing. Meanwhile, in Europe, the ECB is expected to maintain its current policy, dampening expectations of rate hikes. Eurozone inflation is currently at the ECB’s target, further solidifying the likelihood of steady rates. The Euro’s value is likely to be impacted by the balance between these competing forces, leading to potential volatility but also a sense of relative stability in the short term.

JAPANESE YEN is facing downward pressure as political uncertainty arises from the potential for snap elections called by Prime Minister Takaichi, fueling speculation of expansionary fiscal policies. While Japanese officials have voiced concerns over the Yen’s rapid depreciation and potential interventions, the Bank of Japan’s uncertain timeline for future rate hikes, coupled with diplomatic tensions between Japan and China, undermines the Yen’s safe-haven appeal. The US Dollar’s own struggles, stemming from concerns about the Federal Reserve’s independence and tempered expectations for aggressive rate cuts, may provide limited support, but the focus remains on upcoming US inflation data to guide future movements.

CANADIAN DOLLAR faces mixed pressures. While a weaker US dollar, influenced by speculation of Federal Reserve easing and concerns over its independence, offers some support, domestic factors are limiting its potential gains. A rising unemployment rate in Canada reinforces the Bank of Canada’s cautious stance, suggesting no imminent rate hikes. Furthermore, persistently low crude oil prices and significant discounts on Canadian heavy oil grades are hindering export revenues, thereby capping the Canadian Dollar’s upside potential. Traders are closely monitoring upcoming US inflation data for further direction.

AUSTRALIAN DOLLAR faces mixed signals that contribute to an uncertain near-term outlook. Domestically, the Reserve Bank of Australia appears poised to maintain or even raise interest rates in response to persistent inflation, which could support the currency. However, recent declines in Australian job advertisements suggest a potential weakening in the labor market. External factors add further complexity, as a weaker US dollar, potentially driven by expectations of Federal Reserve policy easing and reports surrounding its chair, offer some support. Upcoming Chinese trade data will be closely watched, as Australia’s strong export ties with China make its currency sensitive to changes in Chinese import activity. Traders are also awaiting the US inflation figures for insights into the Federal Reserve’s future actions and their likely impact on the USD, which will subsequently influence the AUD.

DOW JONES is positioned to benefit from a potentially dovish monetary policy outlook. The anticipation of Federal Reserve interest rate cuts, spurred by lower-than-expected core inflation data, is generating upward momentum for the index. While some individual companies within the Dow, like JPMorgan and Bank of New York Mellon, experienced mixed reactions to their earnings reports, and Delta Air Lines faced headwinds with its earnings forecast, the broader expectation of easing financial conditions is likely to outweigh these individual company concerns and support overall gains for the Dow.

FTSE 100 experienced mixed trading signals, leading to a relatively flat performance after reaching a record high. Declines in healthcare stocks and a pause in the gold mining sector’s recent upward trend exerted downward pressure. Conversely, gains in Whitbread driven by reduced cost concerns, coupled with Diageo’s potential restructuring in China and Persimmon’s positive earnings outlook, provided upward support. However, underlying weakness in consumer spending, as evidenced by slowing retail sales growth, casts a shadow on the index’s overall near-term prospects, suggesting continued volatility and limiting potential gains.

DAX is navigating a mixed environment, holding near record highs despite underlying anxieties regarding global instability and monetary policy. Upbeat company-specific news, such as Symrise’s strategic divestment and share buyback program and Barclays’ optimistic view on Zalando’s AI risk, are providing upward momentum. However, this positive sentiment is tempered by downward pressure on sectors like autos and specific companies like Heidelberg Materials and E.ON, alongside a general wariness preceding crucial US inflation data and the commencement of earnings reports from major US banks. This indicates a market in a state of delicate equilibrium, influenced by both positive catalysts and potential headwinds.

NIKKEI is experiencing a significant surge, reaching new all-time highs, driven by a combination of factors. The potential for a snap election and subsequent expansionary fiscal policies under Prime Minister Takaichi is fueling optimism about Japan’s economic growth. This, coupled with attractive valuations and expectations of strong corporate earnings, is drawing considerable foreign investment into Japanese equities. Technology stocks are leading the charge, with substantial gains in major companies, while other heavyweight sectors, including financials, industrials, and automotive, are also contributing to the overall positive market sentiment.

GOLD is experiencing volatility, initially reaching record highs due to cooling US inflation data which reinforced expectations of no restrictive policy changes by the Federal Reserve. Demand for safe-haven assets surged amidst renewed concerns about the Fed’s independence, sparked by a criminal investigation related to Chair Powell’s past testimony, and escalating geopolitical risks, including potential military action against Iran and new tariffs on countries trading with Iran. However, gold prices have since retreated slightly, pressured by a strengthening US Dollar ahead of the US inflation rate announcement. While the fundamental backdrop, including persistent geopolitical uncertainties and expectations of future Fed rate cuts, continues to support gold, traders are awaiting the latest US CPI data, which will significantly influence market sentiment regarding the Fed’s rate cut path and impact the US Dollar’s demand, consequently affecting gold’s value.

OIL is likely to see increased volatility and upward price pressure. New tariffs imposed by the US on nations trading with Iran, coupled with threats of military action against the country, are creating concerns about potential supply disruptions from a major oil producer. These worries are compounded by supply challenges in Kazakhstan due to weather, maintenance, and infrastructure damage. While the anticipated return of Venezuelan oil exports could offset some of the supply constraints, the combined effect of these factors suggests a bullish outlook for oil prices in the near term.

Asset Summary – Monday, 12 January

US DOLLAR is facing downward pressure due to a combination of factors. A criminal investigation into the Federal Reserve Chair has raised concerns about the central bank’s independence, potentially undermining its ability to set monetary policy based on economic conditions. Weaker-than-expected job growth figures have also increased expectations for further Federal Reserve rate cuts, which could further diminish the dollar’s appeal. Heightened geopolitical risks in Iran and South America are adding to the uncertainty. The Dollar Index has fallen below 99.00 and is testing the 50-day EMA support, suggesting weakening momentum. Investors are closely monitoring upcoming inflation data and bank earnings for further direction.

BRITISH POUND is experiencing upward pressure against the dollar, driven by dollar weakness stemming from concerns about the US Federal Reserve’s independence and potential rate cuts. While the dollar faces headwinds from anticipated Fed policy, the pound also confronts challenges. The UK economy shows signs of slowing, with employers scaling back hiring and the potential for the Bank of England to lower interest rates in response to easing inflation. Markets anticipate a near certainty of a Fed rate cut, possibly followed by a pause, and a high probability of a BoE rate reduction, suggesting both currencies are facing dovish monetary policy prospects. The interplay between these factors will likely influence the pound’s trajectory.

EURO is gaining ground against the US dollar, driven by dollar weakness stemming from concerns about the Federal Reserve’s independence. Allegations against Fed Chair Jerome Powell and President Trump’s comments are contributing to this uncertainty. Positive Eurozone data, such as the Sentix Investor Confidence Index, is also supporting the euro. Looking ahead, key economic data releases, including US CPI, will likely influence the euro’s trajectory, though weaker Eurozone CPI data has recently reduced expectations for an ECB interest rate hike this year.

JAPANESE YEN faces a complex and uncertain future. Political factors, including the possibility of a snap election and deepening tensions between Japan and China, create headwinds. Mixed economic signals and uncertainty surrounding the Bank of Japan’s interest rate hike strategy further complicate the outlook. While geopolitical risks offer some safe-haven support, potential supply chain disruptions and concerns about US Federal Reserve independence weigh on the currency. Upcoming US inflation data will be crucial in shaping the Yen’s trajectory. Overall, the balance of factors suggests that the Yen may remain under pressure, with limited potential for significant appreciation in the near term.

CANADIAN DOLLAR is facing headwinds despite a generally weaker US dollar. A recent rise in Canada’s unemployment rate and lack of significant support from crude oil prices are limiting its potential for gains. While the US dollar’s weakness provided a temporary boost, the Canadian dollar’s upside remains capped by domestic economic concerns and the challenges in the oil market, specifically the discount on Canadian heavy sour grades. Overall, the Canadian dollar’s strength is being tempered by internal economic factors and oil market dynamics.

AUSTRALIAN DOLLAR is gaining ground, fueled by expectations of a potential interest rate hike by the Reserve Bank of Australia in response to persistent inflation. Recent hawkish statements from RBA officials, coupled with data indicating continued household spending, support this outlook. Furthermore, a weakening US Dollar, influenced by reports of a criminal investigation into the Federal Reserve Chair and softer US jobs data, is providing additional upward momentum for the Aussie. However, concerns remain due to declining Australian job advertisements and the potential for a bearish technical pattern to emerge.

DOW JONES is facing downward pressure, indicated by futures contracts trading lower. This decline follows broad weakness across US assets, exacerbated by the Trump administration’s increased criticism of the Federal Reserve. The Justice Department’s subpoena of Fed Chairman Powell adds to the uncertainty. Further weighing on the Dow are concerns surrounding bank and financial stocks, which are expected to experience revenue growth pullbacks, as well as potential caps on credit card interest rates. Weakness in major tech companies, driven by worries about datacenter spending, is also contributing to the negative outlook.

FTSE 100 experienced a slight decline, edging away from recent peak values. Investor sentiment appears sensitive to developments in the US, particularly concerning the Federal Reserve’s autonomy and potential implications of proposed credit card interest rate caps, which negatively impacted bank stocks. Simultaneously, rising gold prices provided a boost to gold mining companies listed on the index. Domestically, the UK labor market showed signs of weakening, with employers reducing hiring activity, potentially reflecting concerns about rising costs and dampened business confidence following recent budgetary changes. This combination of international and domestic factors suggests a mixed outlook for the index.

DAX experienced a positive boost, achieving new highs as defense stocks gained momentum. Concerns regarding the independence of the US Federal Reserve and escalating geopolitical tensions, specifically unrest in Iran and potential US military action, appear to be influencing market sentiment. While defense-related companies like Renk, Hensoldt, and Rheinmetall saw significant increases, and FMC benefited from its share buyback program, the automotive sector lagged behind, presenting a mixed picture for the overall index. The possibility of a joint NATO mission in Greenland and the Arctic region may also be contributing to the current market dynamics.

NIKKEI is demonstrating positive momentum, fueled by receding worries over trade tensions with China and surprisingly upbeat domestic spending data. China’s assurance that export controls will not impede normal civilian trade soothed market anxieties. Simultaneously, an unexpected rise in Japanese household spending, attributed to seasonal winter purchases and a moderation in inflation, bolstered consumer confidence. Fast Retailing’s impressive earnings forecast and stock surge, coupled with gains in other major companies like Tokyo Electron, Mitsubishi UFJ, and Toyota Motor, further propelled the index upwards. The upcoming market closure on Monday for a holiday suggests investors will be holding these gains over the long weekend.

GOLD is experiencing upward price pressure driven by several factors. Concerns about the Federal Reserve’s independence, heightened geopolitical tensions involving Iran, the US, and Israel, and expectations of future US interest rate cuts are increasing demand for gold as a safe-haven asset. A weakening US Dollar, coupled with persistent global uncertainties like the US involvement in Venezuela, tensions between China and Japan, and the ongoing Russia-Ukraine war, are further supporting gold’s value. Traders are closely watching upcoming US inflation reports for clues about the Federal Reserve’s future monetary policy, which will likely influence gold’s price trajectory.

OIL is experiencing downward pressure as the potential return of Venezuelan oil exports offsets concerns stemming from the unrest in Iran. While escalating protests and possible US intervention in Iran pose a risk to global supply, particularly given Iran’s significant oil production and exports through the Strait of Hormuz, the anticipation of Venezuela releasing a substantial amount of crude to the US market appears to be mitigating those fears. The resumption of Venezuelan exports, with US oil companies preparing tanker shipments, is contributing to the decline in WTI crude futures.