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Market Briefing: Depressed Earnings Weigh on Global Market Sentiment, Boosting Dollar

US equity futures are falling and the dollar is climbing after weak earnings releases from the likes of Amazon and Apple provided more evidence of a slowdown in the world’s largest economy. The ten-year Treasury yield is flirting with the 4-percent threshold once again, commodities are weaker, and oil price gains are stalling out. Canada’s dollar is struggling to push through the 1.35 mark.

The euro is trading back below parity against the dollar after the European Central Bank delivered a widely-expected 75 basis point hike but removed statement language that had previously suggested rates would ratchet higher at the next “several meetings”.

Governor Haruhiko Kuroda and his merry band of money printers left Japan’s negative policy rate and asset purchase programme unchanged at last night’s meeting. No one in currency markets was surprised, but the yen softened when Kuroda told traders not to expect a “rate hike or exit anytime soon”. Japan remains an outlier among major world economies, with inflation pressures far weaker and monetary policy settings far more loose than its peers.

Data set to land at 8:30 is expected to show consumer spending rising 0.4 percent in September, the same pace as the preceding month. Personal income is seen rising 0.3 percent, and the Fed’s preferred inflation gauge – the core personal consumption expenditures index – is looking likely to print close to 0.4 percent on a month-over-month basis, down from 0.6 in August.

The US employment cost index – closely watched by the Fed as a measure of labour costs – is expected to show strong growth when it is published at 8:30. Data out yesterday showed the economy expanding at a solid pace in the third quarter, even as rates tightened and consumer sentiment faltered.

Economists think Canada’s economy grew 0.1 percent month-over-month in August, consistent with an early estimate from Statistics Canada. Data at 8:30 should show retail sales volumes offset by continued weakness in the manufacturing and real estate sectors.

The University of Michigan’s consumer-confidence index for October, out later in the day, is expected to show households turning slightly more pessimistic but still better than during the height of the mid-summer gas price run-up.

Next week will bring a non-farm payrolls report, but central bank meetings in Australia, the US and the UK are likely to prove more important in setting near-term direction. Markets are braced for rate increases from all three, but are also hoping to see signs of caution beginning to enter official communications – something that would boost investor confidence and relieve strength in the dollar.

Karl Schamotta, Chief Market Strategist

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