ADP Payrolls And Bank Of Canada Preview

Global markets stabilized overnight. Asia Pacific bourses bounced back big time with gains of 2.0% for Tokyo, 1.6% for Sydney and 0.8% for Hong Kong. In Europe today, the Dax is up 0.3% while the FTSE is up 0.5%. US index futures are up 0.1%-0.3%, while Treasury yields are up slightly.
The Bank of Canada finds itself walking a tightrope with its latest interest rate decision and statement which are due at 10:00 am EST. The party line from central banks has been that the fight against inflation continues. In Canada’s case, the most recent inflation numbers showed that while headline consumer prices (which get all the attention) have been falling fast, Core CPI was steady, wage inflation is still running up at 5.0% and house prices are still rising (which is something else the Australians mentioned in their statement yesterday).
On the other hand, a huge gaping hole appears to have opened up in the North American economy which may impact central bank thinking. Canada’s economy contracted by 1.1% from a year ago in Q3, while the US economy expanded by 5.2% over year in Q3. This makes a rate hike in Canada highly unlikely any time soon and if the country slides deeper into recession, the central bank may be forced to move up interest rate cuts. Because of this, comments on the state of the economy and interest rates may be scrutinized even more closely than usual.
Meanwhile, US investors continue to assess the state of their economy and inflation ahead of next week’s Fed interest rate decision and FOMC member forecasts. The sharp decline in treasury yields over the last month suggests investors have started to anticipate a more dovish Fed in 2024. Recent US Data has been mixed. Yesterday, for example, Service PMI was stronger than expected, the prices/inflation component of PMI was steady, job openings fell, Auto Sales were steady, and economic optimism is falling off fast. Today, US ADP Payrolls came in weaker than expected (103K vs street 130K). Friday brings US nonfarm payrolls and wage inflation.
Commodity trading finds WTI Crude Oil down 0.7%, while Natural Gas is up 1.5%. Metals action finds Copper bouncing 0.8%, and Gold up 0.5%. Last night API announced a 0.6 mmbbl build in US weekly oil inventories. Weekly US DOE oil inventories (street -2.2 mmbbls) are due at 10:30 am EST. Tomorrow morning brings China monthly trade numbers which often influence trading in commodities through their influence on resource demand expectations.

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