SEB

Global key stories

Most major US equity indices declined slightly yesterday (S&P 500 0.3%, Nasdaq 0.1%), the dollar rally steadied and the past days’ decline in oil prices ran out of steam. Bitcoin dropped 17% on the first day after it became a legal tender in El Salvador. US 3y notes met a strong demand at the first Treasury auction of the week. The increase in the 10y Treasury yield ran out of steam near 1.37% ahead of the 10y supply today. In an interview with the FT, Fed’s Bullard reiterates that the Fed should proceed with the tapering despite a slowdown in the recovery of the labour market. Mr Bullard is looking for job gains averaging around 500k per month and said that “the big picture is that the taper will get going this year and will end sometime by the first half of next year.” According to Japanese statistics from last night, Q2 growth was revised higher to an annualized rate of 1.9% driven by investment. Chinese stocks trade modestly lower this morning and the earlier rally in Nikkei has moderated. Today’s focus is on rate decisions in Poland and Canada (unchanged policy expected), comments by Fed’ Williams on the economic outlook 19.10 CET), Fed’s Beige Book 20.00CET) and Fed’s Kaplans virtual town hall 00.00 CET).

Beige Book ahead of September FOMC meeting. Ahead of the Fed's 22 September decision, today’s Beige Book will be scrutinized for evidence on economic effects of the delta variant, recent labour market developments and indicators for private consumption as the previous sugar rush is fading. In July, the Beige Book painted a picture of an economy with strong demand, supply disruptions and clear overheating trends in the labour market with few signs of negative effects from the delta virus.

Credit Agricole

Asia overnight: Higher UST yields as well as the prospect of the Fed and ECB winding back stimulus saw risk sentiment sour a little in the Asian session. Chinese stocks were also weighed down by a further ratings downgrade on the bonds of a large property developer as well as market talk of more measures being introduced by Chinese policymakers to curb the property market. Most Asian equities were trading modestly lower at the time of writing. S&P 500 futures were trading slightly in the green. G10 FX moved in the opposite direction to equities with the Antipodean currencies being modest outperformers and the USD and JPY the underperformers during the Asian session. The GBP was also an underperformer during the session.

CAD:BoC to leave asset purchases unchanged, risk of pushing back start date to rate hikes

While the RBA has already tapered its asset purchases this week and the ECB is expected to undertake a ‘technical taper’ of its PEPP asset purchases later this week, we expect the BoC to leave its asset purchases and policy rate unchanged. The BoC one of the early G10 central banks to starting tapering its asset purchases and did so in July. We expect a soft patch of data in Q2, including a surprise contraction in GDP, to cause the central bank to hold off further asset purchase tapering at this meeting. While USD/CAD remains sensitive to global risk sentiment, US-Canadian long-end yields are also a strong driver of the exchange rate. So, the reaction of long-end Canadian yields to the BoC meeting will be important for the currency. The risk around the meeting is that the BoC could push back the timing of when it expects the economy’s excess capacity to be absorbed and therefore of when it will begin raising rates. BoC’s current projection is late 2022, and the risk is that the central bank pushes this date back to early 2023, according our economist.