EncoreFX’s daily market updates are written by our experienced and professional dealing team.
Bank of Canada Rate Decision; Euro Zone Desperate for Stability
Published May 30, 2018
European markets are desperate for a return to normal after the massive selloff in Italian debt, as investors are once again worried about the stability of the euro zone should euro-skeptic parties form the next government. The League argues that fiscal rules used in the euro zone are “enslaving” Italians. Five Star has denied it wants Italy out of the euro.
Economists expect the Bank of Canada will hold firm on its decision on interest rates today. Regulatory changes to Canadian housing markets, uncertainty in global trade, and a lack of investment in the oil industry are all key influences that could prevent the bank from increasing rates more rapidly. The central bank is widely forecast to leave its key target for the overnight rate unchanged at 1.25%.
Prior to the next stage of negotiations between the United States and China, President Trump has amplified pressure on the Chinese delegation. President Trump said that he will move forward with plans to impose tariffs on $50 billion of imports from China with a final list of goods to be published on June 15. The Chinese government said the announcement is “in violation of the consensus reached in Washington recently by both China and the United States”.
Prime Minister Shinzo Abe has voiced his disappointment with the possible introduction of levies on Japanese car exports to the US. The threat of tariffs on steel and car export levies has placed the working relationship between President Trump and Prime Minister Abe on a rocky foundation. Trump’s administration decided last week to begin a national security investigation into auto imports that could lead to new US tariffs similar to those already imposed on imported steel and aluminum. The automotive sector makes up about 30% of Japanese exports to the United States.
Despite Canadian Prime Minister Trudeau still displaying hope that a “win-win deal” for NAFTA can be achieved, Trudeau stated that Canada is unwilling to accept a bad deal. The Prime Minister also spoke on the upcoming G7 summit, affirming that the meeting needs to reassure people about globalization, and that the current challenge for the G7 is to ensure that global growth is being shared fairly. These comments are in direct contrast to the trade strategy being executed by the US administration, which have concentrated heavily on negotiation posturing.
West Texas Intermediate was trading at $67.20 at the time of writing, as crude investors attempt to digest the multiple risks posed by ongoing global trade tensions and the potential easing of production cuts from OPEC and its allies. Another major factor impacting WTI has been American shale production, despite continued infrastructure struggles and storage issues.
US economic growth came in at an annualized pace of 2.2% during the first-quarter of the year, beneath the 2.3% initial estimate. What has been attributed to the downward revision is a gradually slower pace of inventory investment, weakening residential fixed investment and exports coming in fractionally lower than previously thought. The data comes as the US dollar retreats from recent highs, responsive to the developments in Italy which have revived fears over the stability of the euro zone.