Economic growth for the Canadian economy during Q2 was released this morning, and after a string of softer-than-expected indicators over the measurement period, expectations were for annualized growth for Q2 to come in at a 1.6% clip, with an increase of 0.1% in June from the prior month. Business investment in plant and equipment increased by its fastest pace since Q2 of 2011, as annualized economic growth for the quarter bested expectations with a 1.8% print, with the monthly reading for June also showing that the Canadian economy grew faster than forecast, with a 0.2% increase over the prior month. With the pace of economic growth slowing by less than expected (the previous q/o/q annualized print was 1.9%), the Loonie’s overnight gains have accelerated and pushed the USDCAD below the 0.9900 handle, eyeing the mid-.9850s as its next target.
At 10:00am EST Federal Reserve Chairman Ben Bernanke will begin his speech at the Jackson Hole economic symposium, where market participants will no doubt be parsing his address to search for clues on whether or not the Fed will be providing markets with another injection of monetary stimulus through a third round of bond purchases. While economic indicators for the American economy have been picking up, the absence of pressure on consumer prices and a stubbornly sluggish unemployment rate have many market participants calling for the Fed to step in to support the economy.
Regardless of whether diminishing returns to scale for each round of successive QE actually warrants further unsterilized bond purchases, it seems unlikely that Mr. Bernanke will front-run his policy-setting meeting in mid-September and tip his hand today in Jackson Hole. That being said, Bernanke largely avoided any discussion of policy options last year at Jackson Hole, and then the Fed rolled out Operation Twist at their next meeting. So while history has shown that major policy announcements at Jackson Hole are an exception, not a given, if Bernanke fails to put forth any hints of additional monetary stimulus, it doesn’t completely rule out a move in September.
At about the same time Bernanke is taking the podium at Jackson Hole, Factory Orders for the US and Chicago PMI will both be released. While substantial deviations from economists’ expectations of 1.9% and 53.5 respectively will provide investor sentiment with knee-jerk reactions, the overall tone for the trading day will come from the Fed Chairman’s speech.
Make sure to contact your dealing teams to devise a strategy on how to position yourself ahead of what is sure to be a volatile September.
Have a great long weekend!
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