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‘Risk-Off’ as Fears Return and Selling Resumes

Published July 5, 2016
  • We noted yesterday that the bond market seemed to be a bit more concerned with the global economic outlook than the stock market would suggest
  • Today those concerns have resurfaced in full force as a fresh wave of selling has hit risk assets across the board
  • Asian equities posted losses overnight and the selling continued on into the European session as Germany's DAX index leads the way with a -1.8% drop
  • Oil is 3% lower to $47.40 for WTI which has hurt the Loonie as USDCAD trades back into the mid 1.2900's after reaching a 10 day low yesterday in the low 1.2800's 
  • Concerns over the long term implications of the UK's retreat from the EU have sparked another round of selling for the Pound Sterling
  • GBP dropped to a fresh 31 year low against the USD as it holds tenuously to the 1.3100 handle for cumulative losses of 11% this year alone…
  • …the selling was largely influenced by the outlook for Britain's real estate market which is on shaky ground given that the UK's nationalist retrenchment means lower demand for housing and a weaker outlook for commercial property investment 
  • Concerns in the UK are so high that the Bank of England announced measures to reduce capital ratio requirements for banks in an effort to support lending and the functioning of credit markets
  • Yields on benchmark US treasury bonds continue to fall as traders look for safe havens amid the selling – 10 year yields fell to another year-to-date low at 1.39% this morning 
  • As North American markets get underway, we are looking at lower opens for both US and Canadian stocks
  • Economic data is light today with US Factory Orders for May the only data of note (-0.9% expected)
  • Friday is the big one with dual jobs reports for Canada and the US released simultaneously so we could see some outsized moves yet again for USDCAD into the close of the week

Chart: USDCAD back above the key 21 DMA at 1.2869; break of 1.31 or 1.27 would indicate end of current sideways consolidation. Risk skewed to topside.