Commodities: Global Forex and Fixed Income Roundup: Market Talk

The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.

1705 ET – The Canadian dollar tumbled Wednesday, losing about a cent against the US dollar, after the Bank of Canada kept its overnight rate steady, as expected. The USD was recently at C$1.2787 from C$1.2686 late Tuesday, according to CQG. The Bank of Canada kept interest rates at 1% in its latest rate decision Wednesday, a sign that the central bank’s recent hike cycle may be over. A relatively-dovish communique from the BOC on top of concerns over Nafta, housing and mortgage-financing rules may put the central bank on the sidelines for the coming months. ([email protected]; @itsdgc)

1639 ET – The benchmark IPC index closes down 1% at 46,973 points, while the Mexican peso weakens for a second consecutive session and oil prices retreat after US crude oil inventories fell sharply in the past week. America Movil gains 0.2%, while bread-maker Bimbo falls 2%. The peso closed in Mexico City at 18.8670 to the dollar vs 18.7750 late Tuesday. The Mexican currency has been pressured in recent days as US tax-cut plans progress in Washington. ([email protected])

1623 ET – Citigroup CFO John Gerspach, speaking at an investor event on Wednesday, said trading revenue is expected to fall a “high-teens percentage” in 4Q from a year earlier. He cited low volatility and the difficult comparison to the year earlier, when the trading business benefited from activity around the presidential election. He also noted that the weakness was largely in fixed income, currencies and commodities, which makes up a large share of Citigroup’s business. Other bank executives made similar remarks yesterday: Bank of America and JPMorgan projected trading revenue to fall about 15% in the quarter. One bright spot Gerspach noted was investment banking. ([email protected])

1615 ET – The Aussie dollar is ground back down to 0.7560 in New York as the risk-off tone to markets saw USD appreciate. ANZ says AUD is likely to trade on global risk factors in the session ahead. The US government continues to debate tax reform, the Brexit debate is getting heated and German coalition talks are ongoing. The US president’s stance on Jerusalem also raises political risk, ANZ adds. ([email protected]; @JamesGlynnWSJ)

1548 ET – Brazil’s central bank is calling for a reduction in the pace of its year-long rate-cutting cycle. After trimming its Selic benchmark rate to 7% –a record low– from 7.5% today, the bank said that, if all goes as it expects, a lower cut would be warranted. Based on Brazil’s monetary policy habits, that assessment implies a quarter of a percentage point cut in February, taking the Selic to 6.25%. ([email protected]; @ptrevisani)

1533 ET – Mexican consumer confidence rose 1% in November from the previous month, mostly as consumers felt better able to buy big-ticket items. The “Buen Fin” Black Friday-style event Nov 17-20 probably helped lift confidence, along with relative stability last month in the peso against the US dollar and in gasoline prices, says Banorte, but adds that high inflation remains a possible obstacle to further gains in confidence. The National Statistics Institute’s confidence index was up 5.7% from November 2016. ([email protected])

1528 ET – David Rosenberg, the widely read chief economist at Gluskin Sheff, says the Bank of Canada has set a “very high” bar to move off the sidelines and raise rates again. He says in note to clients it will be “long time” before BoC raises rates again, adding a number of uncertainties covering Nafta, housing, mortgage-financing rules among other things, “are simply “far too wide.” Higher interest rates “would do more to compound these uncertainties that Poloz et al are concerned about than alleviate them.” He also takes aim at economists indicating Canadian monetary policy might be too loose, saying raising rates now would trigger recession risks. He says he expects further weakness for C$, with a wait-and-see BoC and the Federal Reserve intent on raising rates. ([email protected]; @paulvieira)

Sal. Oppenheim expects the US dollar to strengthen versus the euro next year, taking EUR/USD towards 1.12 in the next 12 months, says Lars Edler, co-chief investment officer at Sal. Oppenheim. The headline of a Market Talk published at 1334 GMT incorrectly said the EUR/USD could rise toward 1.12, rather than fall to that level.

1304 ET – Bank of Nova Scotia economist Derek Holt tells clients the uncertainty over Nafta is weighing heavily on Bank of Canada policymakers, and perhaps moreso than Wednesday’s rate-policy decision is letting on. BoC remains on hold when it comes to rates, Holt says, and is more mindful of the tenuous state of Nafta talks relative to economic data. Holt says BoC is likely more focused on the risk of raising rates based on economic data, only to find out later Trump makes good on his threat to begin the Nafta withdrawal process. “There is obviously a limit to the point to which monetary policy can be put on hold by never ending uncertainties, but I simply don’t buy that the data is screaming out that this limit is being breached now,” Holt tells clients. ([email protected], @paulvieira)

1156 ET – After reviewing Bank of Canada’s latest rate decision, forecasting firm Capital Economics declares the central bank’s interest-rate hike cycle is over, and maintains BoC may have to reverse course and cut its policy rate in the second half of 2018. “Its cautious policy statement indicates that, in contrast to the market view, it is in no hurry to raise rates again soon,” says the firm, a longtime bear on Canada. The firm says markets are overestimating Canada growth prospects in 2018, because the Canadian economy depends “heavily” on inflated home values, household borrowing and housing investment. Real-estate activity is expected to slow in 2018, due in part to new mortgage-financing rules set to kick in starting in January. ([email protected]; @paulvieira)

1123 ET – Analysts at TD Securities say they “strongly disagree” with parts of the Bank of Canada’s rate decision that deal with the labor market. BoC kept policy rate unchanged at 1% Wednesday. While acknowledging several improvements on the economic front, including the job market, BoC said there continued to be “ongoing slack” in the labor market. “What slack, if we may ask?,” strategists at the firm write in note to clients, citing Canada’s jobless rate sitting at a near record 5.9% and a recent acceleration in wage gains. “Clearly, Poloz is trying hard to justify his pause and buy more time until the next rate hike.” Also, TD Securities says domestic demand barely cooled in 3Q even though output slowed on an export decline. “With rates at only 1%, it is clear the BoC is behind the curve.” ([email protected])

1119 ET – Potential for USD/JPY in 2018 is likely to be limited, according to Rabobank. “Looking ahead, we don’t see much reason to significantly alter our forecast for USD/JPY into 2018,” Rabobank says, forecasting a USD/JPY range of between 110 and 116 on a 12-month view. If geopolitical tensions rise, a move toward safe haven currencies could trigger USD/JPY moving down to 110. And if these are absent, carry trades may push USD/JPY to 116, since the Federal Reserve is tightening and the Bank of Japan isn’t like to do so yet. USD/JPY is down 0.3% at 112.2520. ([email protected]; @OlgaCotaga)

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