Morning Minutes

China Contagion, Canada Election, and Central Bank Meetings



Weekend business news has been dominated by financial problems at Evergrande, one of China’s largest real estate companies, who is struggling with over $300 billion in debt and appears close to missing an interest payment. Fears that this could potentially ignite a wider financial crisis have been weighing on world markets to start the new trading week.

In Asia Pacific, trading, Hong Kong plunged 3.3% while Sydney slid 2.1%. In Europe today, the Dax is down 2.3% while the FTSE has fallen 1.6%. US index futures are down 1.2% to 1.6% this morning with Dow futures down over 500 points at the moment. Commodities are also under pressure today with copper crashing down over 2.0% and WTI Crude Oil dropping 1.8%.

Capital has quickly started to move back into defensive havens. The US Dollar is up about 0.5% against the Canadian Dollar, Australian Dollar and British Pound. Gold and the Japanese Yen are even stronger, gaining 0.3% and 0.4% respectively against the US Dollar.

Canada’s federal election is today with results due overnight but possibly dragging into tomorrow depending on the impact of mail in-ballots. Weekend polls have been showing a very close race between the Liberals and the Conservatives with another minority government looking like the most likely outcome. Although specific sectors like energy and real estate may be impacted by the results, it would likely take a major surprise to otherwise upset the broader market. Note that Germany’s election is next Monday which could have an increasing impact on European trading as the week progresses.

It’s a busy week for central bank meetings starting including the Peoples Bank of China and the Bank of Japan Tuesday night, the Federal Reserve Board Wednesday afternoon, and the Bank of England Thursday morning. The only significant economic numbers of note are flash manufacturing PMI for September and Canada retail sales for July on Thursday morning.

Before the weekend, investors had been looking to the central bank meetings for talk of potential tapering as economies recover. With Evergrande coming to the forefront, the tone of the meetings may shift toward crisis management and averting a contagion or a financial crisis, which could potentially provide a reason/excuse for central banks meeting this week to remain dovish.  

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Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

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