BMO’s Markets Wrap – InvestorsObserver
Bank of Montreal in its morning note of this Monday noted U.S. equity futures were edging higher, suggesting markets will start the week on a firmer footing. The greenback slipped for the first time in over a week, while pressure on commodities eased, with WTI heading back toward US$64.
Markets will have plenty to chew on this week. The main event will be the Jackson Hole Symposium (Aug. 26-28), now held virtually amid the rise in Delta cases. Fed Chair Powell’s keynote speech on “The Economic Outlook” is set to be live-streamed at 10 am on Friday.
It’s a quiet week on the Canadian economic front as the federal election campaign moves into its second week. We’re data-free until Wednesday when we’ll get the flash estimate for July wholesale trade. Thursday brings the Survey of Employment, Payrolls and Hours (Canada’s other jobs survey), and on Friday July producer prices are out. BMO noted we could also get the monthly budget figures from Ottawa on Friday.
The loonie, BMO noted was “absolutely crushed” last week, losing over 2% to end near C$1.282. A risk-off rally in the US$, a 9% drop in oil prices and perhaps a “dollop of election uncertainty” combined to hammer the C$. Interestingly, BMO noted, equity markets and bond yields were a bit more resilient than commodities last week, so we’ll see if that changes. The bank expects Delta news to continue to be a big driver of sentiment, especially with thin summer markets. It said the week is starting out with a more positive tone and that’s supporting the loonie, pushing it back below C$1.28.
Canadas rallied across the curve last week, led by a 4 bp rally in 10s. Despite the strong performance, BMO noted, 10-year yields tested 1.12% three times last week only to get rejected every time. The bank said: “Clearly there’s some notable resistance there. The rejections also suggest that positioning is much cleaner as there doesn’t appear to be much short covering in the intraday moves.” Looking at the rest of the curve, 5s and 30s were about 3 bps better, while 2s were flat. There are two auctions this week: $3.5 billion 3-year (Oct24s) on Wednesday, and $3 bln 30-year (Dec53s) on Thursday. BMO noted that the 3-yr was down from the prior auction size of $4.5 bln. The BoC’s buyback schedule is as follows: Monday, 10-year sector, Tuesday, 5-year sector, Wednesday, 2-year sector, and Thursday, 30-year sector.
Meanwhile, global equities were under pressure last week, as Delta fears weighed on sentiment. The CAC 40 (-3.9%) and CSI 300 (-3.6%) saw the biggest declines, though there was red across the board. The TSX lost 0.9%. TSX sectors were mixed with big losses in materials (-5.3%) and energy (-3.6%), outweighing gains in consumer staples (+1.4%), telcos (+1.3%) and utilities (+1.2%)-cyclicals down, defensives up, as worries about global growth dragged commodities broadly lower. It’s bank earnings week in Canada, with BNS and BMO on Tuesday, Royal and National on Wednesday, and TD & CIBC on Thursday.
Global equity markets were rallying this morning even as the global pandemic and geopolitics dominate headlines. (PM Boris Johnson is reportedly trying to organize a G7 meeting tomorrow to discuss Afghanistan.) Asia kicked the week off with gains spread out broadly…the Nikkei (+1.8%), the CSI 300 (+1.4%), the Hang Seng (+1.1%), and the S&P/ASX 200 (+0.4%). Europe is following suit …. CAC 40 (+0.9%), FTSE MIB and the IBEX 35 (+0.6%), FTSE 100 (+0.4%), and the DAX (+0.2%).