US stocks sail into uncharted waters; loonie shines

• American equities soar to record highs, as ‘bad news is good news’ again
• Loonie advances to best levels this year on Fed-BoC policy divergence
• Trump calls for weaker dollar, but dollar yawns

US stocks hit new records

American equity markets sailed into uncharted waters yesterday, with all the major indices – the S&P 500 (+0.77%), Dow Jones (+0.67%), and Nasdaq Composite (+0.74%) – closing at new record highs. In a classic case of ‘bad news is good news for stocks’, the catalyst behind these gains was a batch of disappointing US data, which reinforced expectations that the Fed will act with force in reducing rates over the coming months. Lower interest rates typically boost riskier assets like stocks.

The ADP employment print for June clocked in at a mere 102k, lower than the expected 140k, igniting worries that the official payrolls number that is due tomorrow may also miss forecasts. Likewise, the ISM non-manufacturing PMI declined by more than projected to hit a two-year low, signaling that the malaise in manufacturing may have started to infect services as well.

US markets will remain closed today in celebration of Independence Day. For traders, that means liquidity will be thinner than usual, so any headline could generate a disproportionately large market impact.

Loonie shines as commodity currencies crawl higher

In the FX market, the positive equities’ mood translated into a boost for the commodity currencies. The aussie, loonie, and kiwi outperformed their major peers, without much in the way of news out of those economies.

The loonie touched a new high for 2019 against the dollar, supported by an uptick in oil prices and the overarching theme of policy divergence between the Fed and the Bank of Canada (BoC). Canadian data have been strong lately, in contrast to other developed economies, which puts the BoC in the odd situation of being the only major central bank not about to cut rates. That could make the loonie much more attractive from a relative rates viewpoint, implying the currency may still have a lot of room to appreciate from here.

Trump hammers on about currency manipulation, dollar yawns

The American president made headlines again on Wednesday, after he tweeted: “China and Europe playing big currency manipulation game”, adding that the US should “match” what they are doing. Admittedly, this is not anything new from Trump as he has made many similar comments on currency manipulation, despite the US Treasury not labelling those nations as manipulators.

What stands out though is the comment that the US should “match”, which is effectively a call for a weaker dollar, likely aimed at the Fed. The greenback fell slightly on the news but recovered almost immediately, to close the session nearly flat against a basket of six major currencies.