Contagion?
By Arnaud Masset
Emerging market currencies and world equities sold off yesterday as investors worried that the crises in Turkey and Argentina could spread to other emerging markets. This morning is still gloomy: European equities slid in Asian equities’ footsteps. The EuroSTOXX 50 fell 0.85%, the DAX gave up 0.65% while the SMI slid 0.45%. In FX, the deterioration in risk sentiment gives legs to the US dollar rally that started last Friday, while safe haven currencies hold ground as investors take shelter.
Most investors believed the uncertainty of the summer would disappear by now – but it seems here to last. We feel it is legitimate to ask: is this temporary or a crisis? The market’s wait-and-see mind-set over the last few months has demonstrated that investors couldn’t find reasons to push stocks higher. We could be in for difficult times – a crisis usually starts at the fringe before moving to the core.
Don’t expect much today from Canada
By Vincent-Frédéric Mivelaz
Trade talks between the US and Canada resume today – don’t expect a quick result. Negotiations already started last Tuesday and came up with no clear agreement on any topic, including agriculture, of which US Trade Representative Robert Lighthizer complained that Canada was not making any concessions. Negotiations have been successful in the past with the EU, with which Canada signed the Comprehensive Economic and Trade Agreement that eliminated 98% of tariffs, including those on dairy products.
While negotiations are on, the Bank of Canada is expected to remain cautious at today’s monetary policy meeting, maintaining its Overnight Lending Rate at 1.50% after raising it on 11 July 0.25%. Continued weakness is expected for CAN, now trading along 1.32, USD/CAD is heading to 1.3210 in the short-term.