Wake Me up when September Ends

(apologies to Green Day)

Another record storm is headed for
the US mainland; North Korea appears to
be preparing for another missile launch, the looming US debt ceiling constraint
saw 4-week T-bills yield rise to 1.3% at yesterday’s auction even as the
10-year yield plumbed to depths not seen since last November.
addition to the already busy schedule for the US Congress as they return from
the summer vacation that includes aide for Harvey, the debt ceiling, spending
authorization, an ongoing investigation into Russia’s attempt to influence the
US election, we must add now six-month period to address the grown children of
illegal immigrants.  

There are national elections in New Zealand, Norway, and Germany.  The French labor reforms will spark
industrial action in a week, but will still most likely be accepted by the
Cabinet later this month before being implemented by decree, as Parliament has
granted.   In the UK, the government’s Great Repeal (transposing EU
laws into English and Scottish law) is facing opposition in Parliament. 
Around midday in London, May faces questions by Labour leader Corbyn.  
The negotiations themselves are apparently proceeding sufficiently to turn the
agenda to the post-amputee relationship.  The EU’s chief negotiator is to
brief the 27 countries today, but the deputy negotiator has already tilted the

The Reserve Bank of Australia met yesterday, and attention turns to the
Bank of Canada today (ahead of the Riksbank and ECB tomorrow). 

Despite the talk about how central banks are exiting their extraordinary
policies, only the Bank of Canada, among the major central banks, is likely to
raise rates this year, according to investors.  

In the US, for example, economists have generally
been more optimistic about another Fed hike this year than the market (which
now looks to be a little less than a 1 in 3 chance).
  In Canada, a
Bloomberg poll found less than 20% of
those surveyed expect the Bank of Canada to hike today, while the OIS is
discounting a little more than a 55% chance.  

The US dollar fell to new lows since mid-2015 against the Canadian dollar
It is flattish today as the market awaits the central
bank’s decision.  We are concerned that given
the strong performance and market positioning, a rate hike could spur “buy
the rumor, sell the fact” activity.  Alternatively, a disappointment if the Bank does not hike could
also lead to some Canadian dollar sales.  Today’s decision is not followed
by a press conference or monetary policy review to help guide
sentiment.   A bounce in the greenback could see new sales emerge in
the CAD1.25 area.   

There have been several economic reports today to note.  Japan
reported unexpectedly poor labor earnings.  Economists had forecast a
year-over-year gain of 0.5% in labor cash earnings.  Instead, they fell 0.3% following a 0.4%
decline in June.  It appears that there was a decline in special cash
earnings, which include bonuses.  Despite tight labor market conditions,
Japanese wage growth remains disappointing.  Before the weekend, Japan is
expected to revise Q2 GDP lower from 1.0% initially to around 0.7%.  Meanwhile, the dollar is lower against the yen
for the third session. It is holding above last month’s low just below
JPY108.30.  It appears more driven by the sharp decline in US yields than
purely Japanese fundamentals.  

Australia reported Q2 GDP  of 0.8% after 0.3% growth in Q1. 
The report fell a little shy of expectations.  Australia reports July
retail sales and trade tomorrow.  The Australian dollar rose to one-month
highs yesterday near $0.8030 but is being
pushed back below $0.8000 today.  Support is
ahead of $0.7950.  

While the eurozone continues to
grow at a pace that is above what is seen
as trend growth (~1.3%), evidence continues to accumulate that the momentum has
This is evident in the
PMIs.  Germany has appeared fairly resilient.  Much of its industry
is competitive at stronger euro levels though the cost structure of other
economies is not as favorable.  However, today Germany reported an
unexpected 0.7% decline in factory orders, which typically are volatile. 
It is the first decline since April. Domestic manufacturing orders fell by
1.6%, while foreign orders were flat.  Among those foreign orders, though,
orders from EMU members fell 1% while orders outside of the zone increased by
0.6%.    Tomorrow Germany reports July industrial output, which
is expected to have bounced back a bit after the sharp 1.1% fall in

The euro is edging higher for the third session.  Recall that
end of last week, after a disappointing US jobs report, the euro had raced back
to $1.1980 before the unsourced story suggesting the ECB might not be ready to
announce its intentions for the asset purchase program until December sent the
euro back to $1.1850.  The euro made a two-year high on August 29 near
$1.2070 before falling to $1.1825 on the last day in August, the day before the
US jobs report.  The $1.1945 and $1.1975 level s correspond to the 50% and
61.8% retracement of the pullback from the high.  

The US reports the July trade balance, which is expected to have
deteriorated a little and the non-manufacturing ISM for August. 
in the session, the Fed will release its Beige Book in preparation for the FOMC
meeting later this month.  At that meeting, the Fed is expected to
announce that its efforts to gradually shrink its balance sheet will begin in
October.  This will be achieved not
by selling a single security, but rather by not rolling over the complete
amount that is maturing.   Meanwhile, the US House of Representatives
is expected to pass initial funding for FEMA and small businesses as soon as today. 
It is in the Senate that is likely to attach an
in the debt ceiling to the measure.  It may face a bit of
resistance there, but it is expected to pass.  Then the bill returns to
the House where the debt ceiling increase may be
more intensely debated


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