Stocks & USD – Dollar strength continues while stock rally pauses
CAD – BOC vacates hawkish bias
Oil – Supply surge puts a dent in Iran sanction boost
Gold – Steadies as stocks fail to make fresh highs
Bitcoin – Tumbles after making fresh 2019 highs
Stocks & USD
Today’s main story was dollar strength. The greenback’s gains were strong across the board with the exception to the Chinese yuan. The dollar hit highs for 2019 against the yen and reached the best levels since the summer of 2017 with the euro. The US economy still remains the most attractive option after today’s German IFO survey showed Germany is still not rebounding and the BOC rate decision highlighted the bank miscalculated the amount of weakness with the Canadian economy.
The Dow finished lower, while the Nasdaq initially made a record high, before turning lower. After hours earnings results saw Facebook and Microsoft deliver strong results that could help drive tech stocks in Asia higher. Tesla extended declines after results came short of expectations.
The Canadian dollar tumbled against of its major trading partners after the Bank of Canada (BOC) put an end to their tightening bias. The central bank cut 2019 GDP forecast from 1.7% to 1.2% and maintained 2020 forecast at 2.1% and set 2021 at 2.0%. The BOC removed the reference of future rate increases which was in every release since the end of 2017.
The Monetary Policy Report basically showed that the economy is worse off than the bank initially thought. The neutral rate was revised lower and the main takeaway is that this was a very dovish rate decision. Canada has been weak for several quarters and expectations and does not help that the bank dropped expectations for export and business investment growth this year. Expectations are growing that the next move could be a rate cut, with the future implied probability at 32.6% for a cut at the September meeting.
The Canadian dollar fell across the board, but still managed to maintain a gain against the Australian dollar and kiwi, mainly due to the dismal CPI readings from down under.
Crude prices continue to come off those 6-month highs following the US EIA report that showed inventories jumped 5.48 million barrels last week, well above the highest estimates. The run-up in prices that stemmed from the US ending of waivers on Iranian crude appears to have run its course. Iran’s exports have fallen to 1.4 million barrels per day, down 50% from a year ago. Iran’s production has fallen from 3.6 million barrels in September to 2.6 million barrels in March.
Oil may be ripe for a pullback, as inventories in both the US and Arab Gulf states appear to be rising and should compensate for lost production from Iran.
The precious metal showed some signs of life after stocks failed to make fresh record highs. Today’s gain is also coinciding with a stronger US dollar, normally they have an inverse relationship. The precious metal will need some stronger catalysts to sustain a move higher and that might be difficult as earnings results have not been painting a worse picture on the economy and trade talk optimism appears intact.
Bitcoin is down 2% on the day after making fresh highs for 2019. The selloff in cryptocurrencies is broad based and some are attributing it to the reports that Ripple CTO David Schwartz is unloading his stack of cryptos.