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eFXdata reports that analysts at CIBC Research offer their reaction to the outcome of the Canadian Federal Elections.

"It's out with the old parliament, in with the old parliament, as Canada's federal election left the seat counts almost unchanged from where they were prior to the vote. While ballots are still be counted, the Liberals will remain in charge of a minority government, with the Conservatives, the official opposition. As before, on a bill opposed by the latter, the Liberals need either the support of the Bloc Quebecois or the NDP to assure its passage."

"We don't expect any notable reaction in the bond or FX markets." 

• UN must shape issues such as trade and the pandemic
• Says he is committed to rebuilding world alliances
• We will pursue new roles of global trade to level playing field
• There is a need to fund climate change and infrastructure
• We will work with congress to double public international financing to help developing countries deal with climate change
• Every nation needs to be involved to limit global warming to 1.5 degrees
• U.S. will oppose attempts by stronger countries to dominate weaker ones
• We are not seeking a new Cold War
• We are committed to preventing Iran from getting a nuclear weapon
• Use of military power should be a last resort
• The world must prepare for the next pandemic
• Says he will outline more steps for world to fight coronavirus tomorrow

The Department of Commerce reported on Monday that current account (C/A) gap in the U.S. widened by 0.5 percent q-o-q to $190.3 billion in the second quarter of 2021 from a revised $189.4 billion gap in the previous quarter (originally -$195.7 billion). This was the highest C/A deficit since the second quarter of 2007.

The deficit was 3.3 percentage of current-dollar GDP in the second quarter, down from 3.4 percent in the first quarter.

Economists had forecast a deficit of $191.0 billion.

According to the report, the $0.9-billion widening of the C/A deficit in the second quarter mainly reflected reduced surpluses on services and on primary income that were mostly offset by a lower deficit on secondary income.

Exports of goods rose $28.3 billion to $436.6 billion, while imports of goods increased $29.0 billion. The gains in both exports and imports primarily reflected gains in industrial supplies and materials, mainly petroleum and products.

Exports of services went up $7.6 billion to $189.1 billion, while imports of services rose $9.1 billion to $127.8 billion.

Receipts of primary income grew $7.7 billion to $270.6 billion and payments of primary income increased $8.8 billion to $221.5 billion. The advances in both receipts and payments mainly reflected increases in direct investment income, primarily earnings.

Elsewhere, receipts of secondary income fell $0.9 billion to $41.6 billion, mainly reflecting a decline in general government transfers, mostly public sector fines and penalties. Payments of secondary income went down $3.5 billion to $72.6 billion, mainly reflecting a decrease in general government transfers, mostly international cooperation.

FXStreet reports that economists at Rabobank expect the US dollar to strengthen in the months ahead. 

“We maintain a constructive outlook for the USD in the coming months and expect the JPY to lose a little ground to the greenback in the months ahead.”

“We expect a move to the USD/JPY 110 to 111 area on a one to three-month view.”

Statistics Canada reported on Monday the New Housing Price Index (NHPI) rose 0.7 percent m-o-m in August, following a 0.4 percent m-o-m gain in the previous month.

According to the report, new home prices increased in 13 out of the 27 census metropolitan areas (CMAs) surveyed in August, with London (+3.9 percent m-o-m) recording the largest monthly advance in new home prices amid supply shortages in the housing market. New home prices also went up in Ottawa (+2.9 percent m-o-m) and for the aggregate of Saint John, Fredericton and Moncton (+1.7 percent m-o-m). At the same time, Edmonton (-0.5 percent m-o-m) and Saskatoon (-0.1 percent m-o-m) registered lower prices in August, while prices were flat m-o-m in the other 12 CMAs included in the survey.

In y-o-y terms, NHPI climbed 12.2 percent in August, following an 11.9 percent jump in the previous month. 

U.S. stock-index futures rose on Tuesday, pointing to a rebound in the equity market after the biggest single-day decline in nearly four months on Monday, as investors decided to buy the dip, despite lingering concerns over a potential default of China’s property developer Evergrande and the start of the Federal Reserve's two-day policy meeting later today.

Global Stocks:

(company / ticker / price / change ($/%) / volume)

AT&T (T) initiated with a Hold at Loop Capital; target $30

Verizon (VZ) initiated with a Hold at Loop Capital; target $57

Walt Disney (DIS) initiated with a Buy at Daiwa Securities; target $225

The Commerce Department reported on Monday the housing starts rose by 3.9 percent m-o-m in August to a seasonally adjusted annual pace of 1.615 million, while building permits surged by 6.0 percent m-o-m to a seasonally adjusted annual rate of 1.728 (the highest level since April).

Economists had forecast housing starts increasing to a pace of 1.555 million units last month and building permits decelerating to a pace of 1.600 million units.

Data for July was revised to show homebuilding increasing at a pace of 1.554 million units, instead of increasing at a rate of 1.534 million units as previously reported.

According to the report, permits for single-family homes, the largest segment of the market, went up 0.6 percent m-o-m in August, while approvals for the multi-family homes segment surged 15.8 percent m-o-m.

In the meantime, groundbreaking on single-family homes declined 2.8 percent m-o-m in August, while housing starts for the multi-family climbed 21.6 percent m-o-m.

USD declined against most of its major rivals in the European session on Tuesday, as worries about a potential default of the Chinese property developer Evergrande eased and focus shifted towards the Federal Reserve's two-day policy meeting.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, decreased  0.23% to 93.06.

Evergrande’s chairman Hui Ka Yuan told staff of the company that it would "walk out of its darkest moment, resume full-scale constructions as soon as possible".  However, this was not enough to overcome default fears. Nonetheless, markets grew more confident that the Chinese government would intervene in the situation with Evergrande and the contagion from the distress of the company would be limited.

The policy meeting of the U.S. central bank will start later today and its outcomes will be released on Wednesday. It is widely expected that at their September gathering the Fed officials will confirm their plans to start QE tapering by the end of the year but will hold off providing details or a timeline for a month or two.

• No need for OPEC to change course on output plan for now

FXStreet reports that economists at Morgan Stanley think markets may be facing a bumpy road ahead and warn of a potential 20% drawdown in the S&P 500.

“We've been suggesting a 10-15% correction in the S&P 500 is inevitable. However, given how long this has taken to play out, the drawdown could end up being closer to 20% if the growth slowdown ends up being worse than normal. Therefore, we continue to think investors should hunker down a bit more than normal and skew portfolios toward defensive quality rather than large cap growth quality.”

“Of course, markets can surprise us. First on the list is another fiscal stimulus directed right at the consumer that sustains the well above trend of demand. This could come from either the US or China. Second would be a Fed that completely reverses course this week and says they no longer plan to taper asset purchases this year or even next year.”

FXStreet reports economists at Société Générale think that the 1.18 level is the next resistance for EUR/USD.

“Formation of a daily hammer on Monday points towards initial rebound.”

“50-DMA at 1.1800 is the first layer of resistance.”

“August trough of 1.1660 and projection at 1.1610 are next supports.”

FXStreet reports that economists at MUFG Bank believe the CAD's recent sell-off looks overdone in the near term.

“In contrast to more marked weakness in the Canadian dollar recently, the price of oil is continuing to hold up better. The resilience of the price of oil is suggesting that Canadian dollar weakness is overdone in the near-term.”

“Prime Minister Justin Trudeau is poised to win a third term following yesterday’s snap election although his Liberal party is set to fall short of winning a majority. Even with another minority government, the early results suggest that the Liberals will have a stable government most likely backed by the left-leaning New Democratic Party. It would allow Prime Minister Trudeau to continue running loose fiscal policy to support the economic recovery.” 

“The additional short-term spending is expected to provide more support for growth next year, and should encourage the BoC to continue tightening monetary policy as they remain on track to begin raising rates during the second half of next year.”

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, notes that the longer-term chart implies that the kiwi’s long-term bull trend is still intact.

“A break above the downtrend at 0.7138 is eventually favoured and will target the 0.7465 2021 high.”

“NZD/USD is above the 55-month ma and the MACD is above zero – it suggests further long-term strength.”

The latest survey by the Confederation of British Industry (CBI) revealed on Monday the UK manufacturers' order books rose in September, hitting the highest level on record.

According to the report, the CBI's monthly factory order book balance increased to +22 in September from +18 in the previous month. This was the highest reading since April 1977. Economists had forecast the reading to come in at +15. Meanwhile, export order books (-2 from -16 in August) improved to their highest balance since March 2019 and was well above its long-run average (-18).

The CBI also reported that output volumes in the three months to September (+16 from +22 in August) decelerated for the second consecutive month but remained firm by historical standards (long-run average of +3). It was also expected that output growth would accelerate in the next three months (+25).

In other survey results, stock adequacy picked up slightly from its record low in August (-11 from -14) but remained weak overall (long-run average of +12). In addition, manufacturers’ expectations for output price growth in the next three months remained strong (+41 from +43 in August, long-run average of +3).

“Today’s survey highlights how amidst a variety of supply challenges, companies are beginning to struggle to meet high demand,” noted Anna Leach, CBI Deputy Chief Economist. “Despite close to half of manufacturers surveyed reporting order books above normal, output growth has slowed sharply, albeit remaining relatively robust. As well as skill and labour shortages, sharply increasing material costs and shortages of key components, producers now face rocketing energy prices.”

Meanwhile, Tom Crotty, Group Director at INEOS and Chair of the CBI Manufacturing Council, said: “It is reassuring to see order books reaching new highs, but global supply chain issues and cost pressures are continuing to hold back the sector. It is important that these issues are addressed as a priority.”

FXStreet reports that economists at Société Générale discuss USD/CNH prospects.

“The test whether the yuan is headed back over 6.50 will come in the coming days, starting tomorrow when markets in China re-open after the extended weekend, and then Thursday when the deadline passes for Evergrande to make coupon and bank loan payments.”

“We’ve been bemused by the resilience of the currency tactically to the downturn in the data as recently as last week, notwithstanding the anchor of the country’s current account surplus. The price action could repeat itself this week, but this time it could be contingent on whether the authorities can douse contagion fears for the broader Chinese economy.”

CNBC reports that with just a handful of days until Germans vote in the federal election on Sunday, the latest poll shows the gap narrowing between the top two contenders.

While Germany’s Social Democratic Party (SPD) remains in front, a new poll by Insa for the German newspaper Bild has found the gap is narrowing. The SPD is now leading the Conservatives by just three percentage points.

The poll showed the SPD winning 25% of the vote, compared to 22% for the alliance of the Christian Democratic Union and Christian Social Union (CDU/CSU), the ruling party of outgoing Chancellor Angela Merkel, followed by 15% for the Green Party.

It indicates that the election is too close to call, although German voters have tended to favor stability in past elections meaning that the lead for the SPD could be scuppered when it comes to election day.

Nonetheless, the SPD’s Scholz — a seasoned politician who is currently finance minister and vice chancellor — appears to be more popular with the public than his CDU/CSU rival Armin Laschet, chosen as the alliance’s successor to Merkel earlier this year.

FXStreet reports that economists at Morgan Stanley think markets may be facing a bumpy road ahead and warn of a potential 20% drawdown in the S&P 500.

“We've been suggesting a 10-15% correction in the S&P 500 is inevitable. However, given how long this has taken to play out, the drawdown could end up being closer to 20% if the growth slowdown ends up being worse than normal. Therefore, we continue to think investors should hunker down a bit more than normal and skew portfolios toward defensive quality.”

“Of course, markets can surprise us. First on the list is another fiscal stimulus directed right at the consumer that sustains the well above trend of demand. Second would be a Fed that completely reverses course this week and says they no longer plan to taper asset purchases this year or even next year. Both seem unlikely at this stage.”

Reuters reports that European Central Bank policymakers still see the recent inflation surge as temporary but a growing number appear to be acknowledging the risk that price growth may exceed their relatively benign projections.

Inflation hit 3% last month, well above the ECB's 2% target and could even climb to 3.5% by November, but the bank then sees a rapid drop that will drag price growth back below 2% for years to come.

ECB Vice President Luis de Guindos stuck with the ECB's main scenario but highlighted upside risks and warned that the bank needs to be "very vigilant" of the risk that temporary price rises could become permanent.

"Some countries in Europe have indexation of pensions and the salaries of public officials to inflation. That should be avoided because if you have a clear indexation of the economy to the evolution of a temporary shock ... then you can convert this temporary upward evolution of inflation to something that is much more permanent. And that is something that we should avoid, " de Guindos said. 

He also warned that commodity prices and production bottlenecks risk creating "second round" effects in inflation.

RTTNews reports that Sweden's central bank forecast the interest rate to remain at zero percent until the third quarter of 2024.

The Executive Board of Riksbank will also continue to purchase securities during the fourth quarter, in line with the earlier decisions.

The board also decided to close the lending facilities that were launched during the pandemic and to restore at the turn of the year the requirements for the collateral the banks have to provide when borrowing from the Riksbank.

The inflation forecast for 2022 was lifted to 2.1 percent from 1.7 percent and that for 2023 was retained at 1.8 percent.

The economy is forecast to grow 3.6 percent next year instead of 3.7 percent estimated previously. Meanwhile, the outlook for 2023 was lifted to 2 percent from 1.9 percent.

FXStreet reports that in the opinion of economists at ING, Fed Chair Jerome Powell could signal a tapering coming later this year.

“After weak jobs data and a slight decrease in inflation in August, we expect to see no changes in the Fed’s policy stance this week. Still, we think there will be a certain degree of acknowledgement that the current level of monetary accommodation may no longer be warranted and that asset purchases may start to be unwound by year-end. Such a tone on tapering may not generate much surprise in the market.” 

“Markets may be sensitive to any signals about the timing of monetary tightening. It is quite a close call, but we do not expect the Median Dot Plot for the first rate hike to shift from 2023 to 2022. In FX, this should translate into a weaker dollar after the FOMC announcement, with pro-cyclical currencies reaping most benefits.”

Reuters reports that a JPMorgan model is pointing to another weak jobs number for September as consumers appear to have dialed back their travel and leisure spending since Labor Day.

The jobs tracker created by the bank's quantitative research team, fed by a range of alternative data including Chase credit card usage and airport security check volumes, suggests that September job growth will come in at 333,000. That would be far from the kind of rebound from August's disappointing job growth of just 235,000 - the lowest total since January - that policymakers at the Federal Reserve and elsewhere are hoping for.

Ahead of the August non-farm payrolls report from the Labor Department released Sept. 3, the JPMorgan research team's model had estimated 353,000 new jobs would be added that month. 

The latest estimate from the quant team's model is down by nearly a quarter million from two weeks ago, and tracks a drop-off in consumer outlays on things like airline travel and restaurants, based on Chase credit card usage data.

That dovetails with recent weakness that has surfaced in other data suggesting the spread of the Delta variant of the coronavirus is damping a range of economic activity that had surged through the spring and early summer on the back of COVID-19 vaccinations and what was then a substantial fall in infections.

During today's Asian trading, the US dollar fell against the euro and the pound, but rose against the yen. The focus of traders' attention this week is the two-day meeting of the US Federal Reserve System (Fed).

The Fed is expected to shed light on the future of the quantitative easing (QE) program. The Federal Reserve has been buying assets worth $120 billion a month since June 2020 under this program, and experts are waiting for clear signals from it about when the Fed intends to start winding it down. Many believe that the Fed may start reducing the monthly volume of asset repurchases as early as November.

Following the results of the meeting on September 21-22, the Federal Reserve will publish fresh forecasts for GDP, unemployment and inflation in the United States, as well as a dot plot  - a chart reflecting the individual expectations of members of the Fed Board of governors and heads of federal Reserve banks regarding interest rates.

Meanwhile, the Bank of Japan is expected to keep the parameters of monetary policy unchanged at the meeting to be held on September 21-22.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell by 0.10%.

Bloomberg reports that Swiss National Bank policy makers watching the effects of negative interest rates on the economy are worrying about the real-estate bubble that their policy is helping to foster.

Aware that any shift in their sub-zero stance could unsettle currency markets, officials are likely instead to highlight the availability of regulatory tools to cool the property market at their decision on Thursday. 

Switzerland has experience dealing with property bubbles amid the constraints of its ultra-loose monetary policy, and previously resorted to such so-called macroprudential tools to keep gains in check. The country is one among several from New Zealand to Denmark whose real-estate markets have spiraled higher in the wake of the pandemic. 

Any commentary on the property market will accompany the SNB’s quarterly decision at 07:30 GMT on Thursday. It’s almost certain to reiterate its buzzword for the franc as being “highly valued” to justify its easy monetary-policy stance with the world’s lowest interest rate of -0.75%. Officials will release new growth and inflation forecasts. 

Designed to prevent too much of a rise in the currency, the SNB’s ultra-easy policy of negative rates and occasional currency-market interventions has protected economic growth at the expense of a buoyant real-estate market. A UBS Group AG indicator deems the situation there as close to a bubble.

Reuters reports that Finance Minister Taro Aso said that Japan may need more time to meet its budget target of achieving a primary balance surplus by fiscal 2025.

"It's true that we are facing a situation where more time may be needed to achieve the primary balance target," Aso said.

On the other hand, Japan's tax revenue has grown despite the pandemic's impact on a fragile economy, making it hard to foresee the fiscal outlook, Aso said.

He said he had no idea how much more fiscal spending the coronavirus may require.

The primary budget balance, which excludes new bond sales and debt servicing, serves as a barometer to determine whether Japan can finance its expenditures with tax revenue without resorting to new borrowing.

Japan has pushed back the primary balance target several times in the past due to rounds of heavy fiscal stimulus it has rolled out to weather economic downturns. Many private-sector analysts see the fiscal 2025 target as difficult, if not impossible, to meet.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1870 (2450)

$1.1834 (838)

$1.1805 (413)

Price at time of writing this review: $1.1735

Support levels (open interest**, contracts):

$1.1689 (3325)

$1.1661 (3273)

$1.1626 (1133)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 8 is 68443 contracts (according to data from September, 20) with the maximum number of contracts with strike price $1,2200 (8526);

GBP/USD

$1.3912 (1088)

$1.3828 (478)

$1.3792 (162)

Price at time of writing this review: $1.3679

Support levels (open interest**, contracts):

$1.3619 (1783)

$1.3587 (1167)

$1.3537 (914)

Comments:

- Overall open interest on the CALL options with the expiration date October, 8 is 11842 contracts, with the maximum number of contracts with strike price $1,4150 (2071);

- Overall open interest on the PUT options with the expiration date October, 8 is 14534 contracts, with the maximum number of contracts with strike price $1,3800 (1783);

- The ratio of PUT/CALL was 1.23 versus 1.21 from the previous trading day according to data from September, 20

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.

According to the report from the Office for National Statistics, public sector net borrowing (excluding public sector banks, PSNB ex) was estimated to have been £20.5 billion in August 2021; this was the second-highest August borrowing since monthly records began in 1993, but £5.5 billion less than in August 2020. Economists had forecast borrowing of 15.6 billion pounds for August.

Central government receipts in August 2021 were estimated to have been £61.2 billion, £5.3 billion more than in August 2020, while central government bodies spent £79.6 billion in August 2021, £1.0 billion less than in August 2020.

Public sector net borrowing (PSNB ex) was estimated to have been £93.8 billion in the financial year-to-August 2021; this was the second highest financial year-to-August borrowing since monthly records began in 1993, £88.9 billion less than in the same period last year.

Public sector net borrowing (PSNB ex) was estimated to have been £325.1 billion in the financial year ending March 2021, an increase of £27.1 billion compared with our previous estimate; largely as a result of recording, for the first time, expected expenditure of £20.9 billion on calls under the government loan guarantee schemes.

Public sector net debt (excluding public sector banks, PSND ex) was £2,202.9 billion at the end of August 2021 or around 97.6% of GDP, the highest ratio since the 98.3% recorded in March 1963.