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According to ActionForex, analysts at RBC Financial Group note that Canada's headline inflation was subdued again in August, growing just 0.1% year-over-year after edging lower to that same pace in July. 

"Growth in food prices continued to outpace other components, albeit at a slower pace, up 1.8% year-over-year versus 2.2% in July. Energy prices fell on a month-over-month basis in August and remained sharply lower from a year ago (-6.3%) as gasoline prices edged lower, that’s after rebounding for 3 consecutive months since its April trough. Outside food and energy components, growth in prices remained at 0.5% year-over-year, matching July’s reading."

"Overall CPI growth is still being weighed down by very subdued demand for services. Services price growth held at July’s record-low 0.5% year-over-year rate in August."

"In the meantime, the Bank of Canada’s preferred core measures (“trim”, “median”, and “common”) held up better than expected, averaging 1.7% in August, up a tenth from the July reading but still lower than the central bank’s 2% target. To-date, labour markets are still weak and the economy is still running well-below capacity levels, and that should keep underlying inflation trends in check – leaving policymakers comfortable keeping interest rates at exceptionally low levels."

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories fell by 4.389 million barrels in the week ended September 11. Economists had forecast an increase of 1.271 million barrels.

At the same time, gasoline stocks dropped by 0.381 million barrels, while analysts had expected a decline of 0.160 million barrels. Distillate stocks rose by 3.461 million barrels, while analysts had forecast a build of 0.600 million barrels.

Meanwhile, oil production in the U.S. climbed by 900,000 barrels a day to 10.900 million barrels a day.

U.S. crude oil imports averaged 5.0 million barrels per day last week, down by 416,000 barrels per day from the previous week.

The National Association of Homebuilders (NAHB) announced on Wednesday its housing market index (HMI) climbed 5 points to 83 in September from an unrevised August reading of 78. This was the highest reading in the 35-year history of the series.

Economists had forecast the HMI to remain at 78.

A reading over 50 indicates more builders view conditions as good than poor.

All three HMI components recorded gains this month, hitting their highest levels ever. The indicator gauging current sales conditions jumped 4 points to 88 in September, while the component measuring traffic of prospective buyers surged 9 points to record 73 and the measure charting sales expectations jumped 6 points to 84.

NAHB Chairman Chuck Fowke noted: “Historic traffic numbers have builders seeing positive market conditions, but many in the industry are worried about rising costs and delays for building materials, especially lumber. More domestic lumber production or tariff relief is needed to avoid a slowdown in the market in the coming months.”

Meanwhile, NAHB Chief Economist Robert Dietz said: “Lumber prices are now up more than 170% since mid-April, adding more than $16,000 to the price of a typical new single-family home. That said, the suburban shift for home building is keeping builders busy, supported on the demand side by low interest rates. In another sign of this growing trend, builders in other parts of the country have reported receiving calls from customers in high-density markets asking about relocating.”

The Commerce Department announced on Wednesday that business inventories edged up 0.1 percent m-o-m in July, following an unrevised 1.1 percent m-o-m drop in June.

That was in line with economists’ forecast for a 0.1 percent m-o-m increase.

According to the report, stocks at retailers climbed 1.2 percent m-o-m in July, while inventories at manufacturers fell 0.5 percent m-o-m and those at wholesalers dropped 0.3 percent m-o-m.

• We stand ready to act if incoming data is not consistent with objective of our emergency measures
• It’s important that financial institutions and other market participants are prepared in the event of no-deal scenario

U.S. stock-index futures rose on Wednesday amid hopes that the Federal Reserve would reiterate its pledge to keep interest rates low for a prolonged period.

Global Stocks:

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

The Commerce Department reported on Wednesday the sales at U.S. retailers rose 0.6 percent m-o-m in August, following a revised 0.9 percent m-o-m increase in July (originally a 1.2 percent m-o-m gain).

Economists had expected total sales would advance 1.0 percent m-o-m in August.

According to the report, the largest gains in retail sales were recorded in food services and drinking (+4.7 percent m-o-m), clothing (+2.9 percent m-o-m) and furniture (+2.1 percent m-o-m). In addition, gasoline prices rose, supporting receipts at service stations (+0.4 percent m-o-m), while sales of autos edged up 0.2 percent m-o-m.

Excluding auto, retail sales grew 0.7 percent m-o-m in August after a revised 1.3 percent m-o-m climb in the previous month (originally a 1.9 percent m-o-m surge), worse than economists’ forecast of a 0.9 percent m-o-m advance.

Meanwhile, closely watched core retail sales, which exclude automobiles, gasoline, building materials and food services, and are used in GDP calculations, edged down 0.1 m-o-m in August after a downwardly revised 0.9 percent m-o-m rise in July (originally a 1.4 percent m-o-m jump). Economists had forecast core retail sales growing 0.5 percent m-o-m in August.

In y-o-y terms, the U.S. retail sales rose 2.6 percent in August after a revised 2.4 climb in the previous month (originally a 2.7 percent raise). 

Apple (AAPL) target raised to $140 from $112.50 at Needham 

Dow (DOW) downgraded to Reduce from Hold at HSBC Securities; target $33

Statistics Canada announced on Wednesday the country’s consumer price index (CPI) fell 0.1 percent m-o-m in August, the same pace as in the previous month.

On the y-o-y basis, Canada’s inflation rate increased 0.1 percent last month, also the same pace as in July.

Economists had predicted inflation would increase 0.1 percent m-o-m and 0.4 percent y-o-y in August.

According to the report, prices rose in five of the eight major components on a year-over-year basis in August, led by gains in prices for food (+1.8 percent y-o-y), shelter and health (+1.5 percent y-o-y) and personal care (+1.4 percent y-o-y), Meanwhile, cost of transport dropped (-1.3 percent y-o-y), mostly due to lower air transportation prices (-16.0 percent y-o-y), which fell as demand for air travel has fallen during the pandemic and airlines continue to offer travel discounts to encourage a return to travel. In addition, prices declines in clothing and footwear (-1.3 percent y-o-y) and recreation, education and reading (-3.1 percent y-o-y).

Meanwhile, the closely watched the Bank of Canada's core index rose 0.8 percent y-o-y in August after a 0.7 percent gain in July. 

NFXStreet reports that Economist at UOB Group Lee Sue Ann notes that the BoJ is now expected to refrain from cutting rates further into the negative territory and is seen increasing its bond purchasing programme instead at the next meeting (Thursday).

“We still expect the BoJ to do more and enhance its monetary easing stance further in 2H20. However, our long-held view that it will ease via deepening further its negative policy rate is now an increasingly remote possibility.”

“Instead, we think the BoJ will ease via increasing its JGB purchases.”

USD depreciated against other major currencies in the European session on Wednesday as investors awaited the announcement of the Federal Reserve’s monetary policy meeting (due at 18:00 GMT) and a press conference of its Chairman Jerome Powell (due at 18:30 GMT).

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, dropped 0.16% to 92.90.

The Fed is widely expected to leave its key interest rates and reaffirm its new, more tolerant stance on inflation, which was introduced by Chairman Powell in August and implies that rates will be kept low for a longer period.

Investors will also pay close attention to the Fed officials’ fresh economic projections. The policymakers are likely to acknowledge the latest improvements in the U.S. economy, particularly in employment, wages and business activity, but remain cautious in their new growth forecasts, reiterating that the road to recovery will be long and bumpy.

FXStreet reports that economist at UOB Group Ho Woei Chen, CFA, assessed the latest set of data releases in the Chinese economy and the prospects for the third quarter.

“Industrial production growth accelerated to 5.6% y/y in August..., the fifth straight month of gains… With the sustained gains, industrial production has finally turned the corner with +0.4% y/y year-to-date increase compared to -0.4% in the previous month.”

“Retail sales also came in above expectation at +0.5% y/y..., its first positive growth since the start of the year... Overall, the rebound in August has narrowed the year-to-date decline in retail sales to -8.6% y/y from -9.9% y/y in the preceding month.”

“The economic data in August, including the stronger-than-expected trade and credit growth, all point towards an acceleration in 3Q GDP growth… We now see some upside risk to our GDP forecast for China which is at 4.9% y/y in 3Q and 5.7% y/y in 4Q (2Q: 3.2% y/y) for full-year 1.8% growth.”

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. fell 2.5 percent in the week ended September 11, following a 2.9 percent advance in the previous week.

According to the report, refinance applications declined 3.7 percent, while applications to purchase a home dropped 0.5 percent.

Meanwhile, the average fixed 30-year mortgage rate remained unchanged at 3.07 percent.

“With the flurry of refinance activity reported over the past several months, demand may be slowing as remaining borrowers in the market potentially wait for another sizable drop in rates,” noted Joel Kan, an MBA economist.

FedEx (FDX) reported Q1 FY 2021 earnings of $4.87 per share (versus $3.05 per share in Q1 FY 2020), beating analysts’ consensus estimate of $2.72 per share.

The company’s quarterly revenues amounted to $19.321 bln (+13.3% y/y), beating analysts’ consensus estimate of $17.563 bln.

FDX rose to $260.40 (+10.03%) in pre-market trading.

BoE: Further stimulus in the pipeline? - UOB

FXStreet reports that in the opinion of Lee Sue Ann, Economist at UOB Group, the BoE cold announce an increment of its QE programme at Thursday’s meeting.

“Whilst policymakers are reviewing the sustainability of negative rates and are careful not to rule anything out, it seems that, for now, the BoE will steer clear of going negative and stick with QE as the main stimulus tool.”

“We forecast a further extension of GBP100bn in its Asset Purchase Facility (APF) by the November meeting.”

FXStreet notes that EUR/USD stays sidelined near-term and only above 1.1930 would ease the threat of a top and reassert the underlying uptrend. To the downside, key support remains seen at 1.1754/53, according to the Credit Suisse analyst team.

“EUR/USD remains sidelined, trapped in the sideways range of the month and a half and although the threat of a top remains a real possibility, while support from its uptrend from May and near-term price support still holds, today seen at 1.1817/09 the immediate risk can stay seen mildly higher within the broader range.”

“Resistance is seen at 1.1876 initially, then 1.1901, with a break above 1.1930 needed to curtail thoughts of a top to suggest the consolidation is over for a move back to 1.2011 and eventually our 1.2145/55 first major upside objective – the “neckline” to the early 2018 top and the 78.6% retracement of the entire 2018/2020 fall. We would look for a cap here for a fresh phase of consolidation.”

CNBC reports that the Organization for Economic Cooperation and Development warned that the global economy has performed better-than-expected but it is still on track for an “unprecedented” decline in output.

In its latest economic outlook, the OECD said the world economy will contract by 4.5% this year — an upward revision from an estimate made in June that pointed to a 6% fall in gross domestic product (GDP).

Going forward, the OECD expects the global economy to grow by 5% in 2021. Nonetheless, the outlook “remains exceptionally uncertain” due to the coronavirus pandemic.

“Output picked up swiftly following the easing of confinement measures and the initial re-opening of businesses, but the pace of the global recovery has lost some momentum over the summer months,” the OECD said.

China is seen growing by 1.8% in 2020 — the only country among the OECD estimates that’s expected to experience growth. By contrast, the U.S. economy is set to contract by 3.8% and the euro area by 7.9%.

FXStreet reports that below 124.44 the EUR/JPY would mark a top with support then seen at 124.11, then 123.19. On the flip side, resistance is seen at 125.28/32, the Credit Suisse analyst team reports.

“EUR/JPY strength has quickly faded and the sharp sell-off yesterday quickly turns the spotlight back to the twin 124.44 lows of late August and earlier this month. Beneath here would see a top established with support seen initially at the 55-day average at 124.28, then 124.11 – the 38.2% retracement of the rally from late June. We would like to see this latter level removed to confirm the top and more important turn lower with support then seen next at the 50% retracement at 123.19, ahead of price support at 122.84 and then more importantly at the 38.2% retracement of the entire rally from May at 122.27/23, with the “measured top objective” seen below here at 121.80. 

According to the report from Eurostat, in July 2020, the COVID-19 containment measures widely introduced by the Member States continued to have a noticeable impact on international trade in goods. The first estimate for euro area (EA19) exports of goods to the rest of the world was €185.2 billion, a decrease of 10.4% compared with July 2019 (€206.7 bn). Imports from the rest of the world stood at €157.3 bn, a fall of 14.3% compared with July 2019 (€183.5 bn). As a result, the euro area recorded a €27.9 bn surplus in trade in goods with the rest of the world in July 2020, compared with +€23.2 bn in July 2019. Intra-euro area trade fell to €153.7 bn in July 2020, down by 8.6% compared with July 2019.

In January to July 2020, euro area exports of goods to the rest of the world fell to €1 199.6 bn (a decrease of 12.4% compared with January-July 2019), and imports fell to €1 086.6 bn (a decrease of 13.1% compared with January-July 2019). As a result the euro area recorded a surplus of €113.0 bn, compared with +€119.3 bn in January-July 2019. Intra-euro area trade fell to €1 021.8 bn in January-July 2020, down by 13,0% compared with January-July 2019.

Reuters reports that European Commission President Ursula von der Leyen said that the EU is ready to build a new transatlantic agenda on issues from trade to tech and taxation with whoever wins the U.S. presidential election.

"We might not always agree with recent decisions by the White House. But we will always cherish the transatlantic alliance - based on shared values and history, and an unbreakable bond between our people," von der Leyen told.

"So whatever may happen later this year, we are ready to build a new transatlantic agenda. To strengthen our bilateral partnership - be it on trade, tech or taxation.

CNBC reports that Blackstone’s Executive Vice Chairman, Tony James, told that the coming years could be a “lost decade” for equity returns as companies struggle to grow their earnings.

James told that stock prices may not rise further after becoming fully valued over a “five- to 10-year horizon.”

“I think this could be a lost decade in terms of equity appreciation,” he said, referring to a term commonly used to describe a period in the 1990s when Japan experienced economic stagnation. 

He explained that current low interest rates may not dip further and may instead rise to more normal levels in the coming years.

In addition, companies will face “plenty of headwinds” that put pressure on earnings, he said. That includes higher taxes, increase in operating costs, less efficient supply chains and “deglobalization” that will hurt productivity, explained James.  

FXStreet reports that USD/JPY risks further downside and a probable test of the 105.00 region in the next weeks, noted FX Strategists at UOB Group.

Next 1-3 weeks: “Yesterday (15 Sep, spot at 105.70), we indicated that ‘downward momentum has improved considerably and from here, USD is expected to trade with a downward bias towards the next major support at 105.20’. The pace of the decline was more rapid than expected as USD dropped to an overnight low of 105.28. Downward momentum continues to improve and from here, a break of 105.20 would shift the focus to the major support at 105.00. Looking forward, USD has to close below this solid support before further weakness can be expected. All in, USD is expected to remain weak unless it can move above 106.00 (‘strong resistance’ level was at 106.30 yesterday).”

Reuters reports that British Prime Minister Boris Johnson’s government sees a ‘way through’ the parliamentary maze for his bill that would break the Brexit divorce treaty as it talks with rebels in the Conservative Party, a minister said on Wednesday.

Johnson’s Internal Market Bill, which the EU has demanded he scrap by the end of September, is currently being debated in parliament, though he is facing a rebellion by some members of his Conservative Party.

“I believe there is a way through,” Robert Buckland told the BBC when asked about negotiations with rebels in parliament over the bill, adding that London wanted a deal with the EU.

“In terms of shared understanding, I have already seen quite a difference,” he said when asked about a possible compromise in parliament.

The EU says Johnson’s bill could collapse trade talks and propel the United Kingdom towards a messy Brexit while former British leaders have warned that breaking the law is a step too far that undermines the country’s image.

During today's Asian session, the US dollar traded stable against the euro, but fell slightly against the yen.

Traders will focus on the meeting of the Federal reserve system, the results of which will be released on Wednesday, as well as a press conference of the head of the Federal reserve Jerome Powell following the meeting.

Experts are confident that the Fed will remain "dovish" after the recent change in the long-term strategy. They expect that the new strategy, which provides for a more lenient approach of the Central Bank to monetary policy, will be reflected in concrete measures to support the US economy, given that the prospects for approval by the US authorities of the next portion of budget incentives are becoming more doubtful.

The Fed's stimulus policy provides serious support to the US economy against the background of risks associated with both the coronavirus pandemic and the upcoming presidential elections in the States.

The yen rose against the US dollar. Japan's Parliament on Wednesday supported Yoshihide Suga's candidacy as the new Prime Minister by a majority vote. A vote in the upper house of Parliament is due later. Even if its decision differs, the house of representatives has a pre-emptive right to appoint the Prime Minister.

The ICE index, which tracks the dynamics of the US dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), was almost unchanged (-0.02%).

Bloomberg reports that according to Ray Dalio, founder of hedge fund giant Bridgewater Associates, the dollar’s decades-long position as the global reserve currency is in jeopardy because of steps the U.S. has taken to support its economy during the Covid-19 pandemic.

While equities and gold benefited from the trillions of dollars in fiscal spending and monetary injections, those efforts are debasing the currency and have raised the possibility that the U.S. will go too far in testing the limits of government stimulus, Dalio said in an interview with Bloomberg Television.

The Bloomberg Dollar Spot Index has dropped 10% from its peak in late March as investors responded to the pandemic and efforts by central bank and government officials to contain the economic fallout. 

Dalio said in July that investors should favor stocks and gold over bonds and cash because the latter offer a negative rate of return and central banks will print more money. 

FXStreet reports that analysts at Bank of America (BofA) believe that the Fed monetary policy decision is unlikely to have a significant impact on the FX market.

"We expect the Fed to take the first step in shifting from stabilization to accommodative policies at the upcoming meeting. This will likely take the form of stronger forward guidance, linking the ZLB to an inflation overshoot.

“We also expect the Fed to tweak the statement to tie the balance sheet policy to support the economy rather than market stabilization.“

"The US rates market will be most focused on changes to forward guidance and any balance sheet adjustments. We see risk the rates market is underwhelmed by the guidance provided by the Fed, which would support higher back-end rates and a steeper curve. “

“We anticipate a subdued reaction in the FX market, with risks somewhat skewed USD-negative on the day depending on forward guidance language." 

According to the report from Office for National Statistics, the Consumer Prices Index (CPI) 12-month rate was 0.2% in August 2020, down from 1.0% in July. Economists had expected the index to remain unchanged.

The Consumer Prices Index including owner occupiers' housing costs (CPIH) 12-month inflation rate was 0.5% in August 2020, down from 1.1% in July 2020.

The largest contribution to the CPIH 12-month inflation rate in August 2020 came from recreation and culture (0.35 percentage points).

Falling prices in restaurants and cafes, arising from the Eat Out to Help Out Scheme, resulted in the largest downward contribution (0.44 percentage points) to the change in the CPIH 12-month inflation rate between July and August 2020.

Other smaller downward contributions came from falling air fares and clothing prices rising by less between July and August 2020 than between the same two months a year ago.

The largest, partially offsetting, upward contributions came from games, toys and hobbies, accommodation services, road transport services and second-hand cars.

As the restrictions caused by the ongoing coronavirus (COVID-19) pandemic have been eased, the number of CPIH items that were unavailable to UK consumers in August has reduced to eight, these account for 1.1% of the CPIH basket by weight and made a small downward contribution of 0.01 percentage points to the change in the CPIH 12-month rate; the number of unavailable items is down from 12 for July and a high of 90 for April; for August, we have collected a weighted total of 86.9% of comparable coverage collected previously (excluding unavailable items).

EUR/USD

Resistance levels (open interest**, contracts)

$1.1978 (3825)

$1.1952 (2433)

$1.1932 (528)

Price at time of writing this review: $1.1843

Support levels (open interest**, contracts):

$1.1799 (901)

$1.1774 (1190)

$1.1745 (2975)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date September, 4 is 62626 contracts (according to data from September, 15) with the maximum number of contracts with strike price $1,1700 (4418);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3102 (265)

$1.3051 (206)

$1.3012 (120)

Price at time of writing this review: $1.2892

Support levels (open interest**, contracts):

$1.2823 (623)

$1.2802 (710)

$1.2779 (850)

Comments:

- Overall open interest on the CALL options with the expiration date September, 4 is 13564 contracts, with the maximum number of contracts with strike price $1,3600 (1189);

- Overall open interest on the PUT options with the expiration date September, 4 is 14985 contracts, with the maximum number of contracts with strike price $1,3150 (2619);

- The ratio of PUT/CALL was 1.10 versus 1.13 from the previous trading day according to data from September, 15

* - 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.