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The Loonie Best Performing G10 Currencies After a tight campaign marred by scandals, Justin Trudeau secured another term as Prime Minister. Unlike a clear win in 2015, the Prime Minister did not pass the threshold of 170 seats and will lead a minority government. The governing party will be forced to depend on other parties to pass legislation.

The voting results show deep divisions in the country: The Liberals won in terms of seat numbers. The Conservatives won 121 seats in Parliament compared with 99 in 2015 and have won the popular votes claiming 34.4% over the Liberals’ 33%. Bloc Quebecois was a huge win as they gained 22 seats.

The outcome of the election is unlikely going to drastically change the dynamics in the Canadian markets. On a broader level, there are layers of similarities between the agendas of the different political parties which will help to reduce the uncertainties that generally arises from election results. However, the Liberals governing as a minority government will rely on smaller parties to push legislation which will be challenging.

In the money markets, the Canadian dollar was trading near three-months high against its US counterpart on the Liberals win. The loonie has been on an upswing this year backed mostly by strong economic data and is currently the best performing G10 currencies: Source: Bloomberg Terminal Canada's Economy The Canadian economy outperformed its rivals which allowed the Bank of Canada to keep its benchmark interest rate steady at 1.75% while other central banks have cut their own rates in response to the global backdrop. Employment Employment rose by 54,000 in September driven by gains in full-time work while the unemployment rate declined by 0.2% to 5.5%.

The growth was mostly seen in the self-employment and public sector employees. Source: Bank of Canada Wage Growth The Average Hourly Wage Rate year-on-year in September jumped to 4.25% and marked the strongest month in a decade. Source: Bloomberg Terminal The Wage-common, a wage measure that the Bank of Canada uses to capture the underlying wage pressures reflecting the common trend across data sources rose to 2.7% in the second quarter in 2019.

Source: Bank of Canada Inflation The Bank of Canada aims to keep inflation at the 2% midpoint of an inflation-control target range of 1% to 3%. The recent annual inflation rate stood steady at 1.9% but fell low of market expectations of 2.1%. However, inflation remains close to or on target since March 2019.

Business Outlook Survey The Business Outlook Survey indicator rose to 0.40 which shows a slight improvement in overall sentiment. However, due to the challenges in the energy sector, the sentiment in Prairies remain predominantly negative. The Loonie While major central banks have been cutting interest rates, the BoC has been reluctant to do so despite the global downturn because of the sound economic environment.

The Canadian dollar has been on the rise and has retained the number 1 spot among the G10 currencies against the US dollar. After the election, the prospects of growth-boosting fiscal policies combined with a resilient economy may keep the BoC on the sidelines. If there is a coalition between the Liberals and the NDP, there could be a much larger fiscal spending than originally expected.

Tax cuts would also help to boost consumer spending. Investors are expecting further divergence between the Fed and the BoC. While the BoC is expected to keep its interest rate on hold this year and until late 2020, the Fed is widely expected to cut rates.

In the short-term, we expect the loonie to benefit from the rate divergence and the fiscal boost. In the medium-term, the Canadian dollar may weaken as the effective implementation of the fiscal expansionary policy will lower the Canadian exchange rate. See our introduction to forex for more information, including currency trading for beginners here.

The European Union Top Jobs The European Central Bank (“ECB”) President The European leaders nominated Christine Lagarde, a French lawyer and a politician serving as Managing Director and Chairwoman of the International Monetary Fund ("IMF") as the ECB President. The ECB is responsible for the monetary policy of the nineteen EU member countries. If elected, Christine Lagarde will be the first ECB president without any direct experience in setting central bank policy.

Being a lawyer and a politician rather than an economist, her nomination came as a surprise. However, her experience as the leader of the IMF and as a former French finance minister combined with her comments and opinions on central-banking issues over the years might have reassured governments of EU countries that her nomination will keep the euro-zone monetary policy steady. Christine Lagarde will probably face several challenges: Boosting Growth in the Eurozone Keep the eurozone together despite the rise of populist parties Display independence at a time where central banks’ independence is being threatened amid populist governments.

European Markets The European share market rose on the news of the nomination. Christine Lagarde reinforced the expectations that she will follow the footsteps of Mario Draghi, which is why the prospects of more stimulus package to support the ailing eurozone economy sent European shares higher. World Equity Indices (% Change) Source: Bloomberg Terminal The Shared Currency The Euro struggled to find the upside direction following the recent dovish ECB comments.

The nomination meant that at least in the short-to-mid-term, Christine Lagarde would continue with the easing policies which will oscillate sentiment for the shared currency. The EURUSD pair moved from a high of 1.1371 to a low of 1.1269 this week. EURUSD (1 Month Chart) Source: Bloomberg Terminal Other EU Top Jobs European Commission President: Ursula Von Der Leyen is a German politician servicing as Minister of Defence since 2013.

She will be the 13 th commission president if elected. She will also be the first woman in the post. European Council President: Charles Michel is a lawyer and the interim Belgium Prime Minister who was nominated to replace Donald Tusk.

He resigned over his support for the UN immigration pact but stayed in the caretaker role until the next elections. The convention is that the role is filled by former heads of state and government. European Parliament President: David Maria Sassoli is an Italian politician and a journalist and as President will act as the speaker of the house, chairing debates in the plenary and ensuring parliamentary procedures are followed.

High Representative of the Union for foreign affairs and security policy: Josep Borrell has been Spanish foreign minister under socialist Pedro Sanchez. He will be the chief coordinator and representative of the Common Foreign and Security Policy within the European Union.

A “Dovish” or “Hawkish” Rate Cut The Federal Reserve (Fed) is poised for its first-rate cut in a decade-long of economic expansion. Trade protectionism and a slowing world economy are the two primary factors behind the global push towards easing policies. As the world’s central banks are in a race to cut interest rate to stimulate their economies, the focus will be on the Fed this week which is likely going to engage in its first-rate reversal since the financial crisis.

Source: Bloomberg Terminal It should be highlighted that the US interest rate is still in the low levels despite years of economic growth. It is around half levels it was before the financial crisis. If the Fed starts a rate cut cycle, the central bank will have limited room to lift its economy, in case of future downturns.

American Economy The US economy remains strong, and a look at the recent economic figures may not by its own justify an interest rate cut. However, the Fed is mostly concerned about the slowing world growth, the effects of the ongoing trade war and subdued inflation. The labour market has remained the bright spot of the US economy.

Total nonfarm payroll employment increased by 224k in June and it is forecasted to come around 170k for July. In the latest report, the most prominent jobs gains were in the professional and business services, health care, transportation and warehousing. The unemployment rate in the US is near a 50-year low.

Wages have also risen in the past few days. Growth in consumer spending has also bounced back in the second quarter. Despite a low unemployment and strong overall growth, inflation pressure remains muted which is the source of worry for the central bank.

Gross Domestic Product increased at an annual rate of 3.1% in June. Last Friday, the annual preliminary GDP figure was significantly lower at 2.1% from 3.1% in the first quarter. However, it came above expectations as markets forecasted a drop to 1.8%.

Business Investment growth and the manufacturing sector have slowed notably, and the weak growth is mostly due to trade tensions and the rising threats of trade protectionism. The housing sector is also showing some signs of distress. All in all, the Fed does not see the economy in distress and will likely cut interest rate as a preventative measure.

A 25 or 50 Basis Points ? Market participants are pricing nearly 80% probability of a 25bps and above 20% probability of a 50bps rate cut. There were mixed messages on the dovishness of FOMC members which did not fully convince the markets that the Fed will engage in an aggressive rate cut cycle in the coming months.

If the Fed slashes interest rate this week, it will likely be a quarter-point precautionary cut. If the Fed is cutting interest rate for preemptive reasons in the face of a slowing economy and trade tensions, a 50 basis point might signal that the US economy is in distress which does not seem to be the aim of the Fed. Also, a 50 bps might signal that the Fed made a policy mistake in December in hiking rate.

The rate cut should have pleased President Trump, but President Trump renews attack on the Fed and is already telling the Federal Reserve that the quarter-point cut will not be enough. Stock Market To some extent, the rate cut has already been priced-in at least one rate cut as we have seen some record highs in the stock markets based on the return to the lower rate world. S&P500 reached a record high at 3,027.98 points Source: Bloomberg Terminal Nasdaq Composite reached an all-time high at 8,293.33.

Source: Bloomberg Terminal The ASX200 briefly rose to an all-time high at 6,875 on Tuesday before retreating to high levels seen in 2007. The Australian share market has returned to levels seen before the global financial crisis. Source: Bloomberg Terminal The stock markets are being buoyed mostly by monetary easing policies.

However, the fears of a fragile global trade system and volatile political climate are forcing investors to stay cautious. Yesterday’s tweets from the US President reiterates that actions in the global stock markets are a Tweet Away ! Many dubbed this week as one of the “busiest weeks of the year” because trade negotiations have resumed this week, and the markets are waiting to see if the Fed will lead the global push to lower rates.

Tesla Second Quarter 2019 Update Tesla, the electric car maker, reported its second-quarter earnings on Wednesday in late US trading hours. Despite record production and deliveries, Tesla missed revenue estimates. The company reported a net loss of $408 million.

Its share price fell by more than 20% since the beginning of the year after reaching a high of $380. Source: Bloomberg Terminal After the release of the second-quarter results, we saw a drop of 12% in the after-trading hours. Despite the wider-than-expected loss, the company reported a recovery compared to the first quarter: Net loss declined significantly compared to Q1.

The company ended the quarter with the highest level of cash and cash equivalents, which is $5.0bn. Model 3 has also received the highest ever ratings from stringent testing protocols. Model 3 deliveries reached an all-time record of 77,634 and were the best selling premium vehicle in the US.

Gigafactory Shanghai is taking place, and in quarter 2, they started moving machinery into the facility. The second generation of Model 3 which is a more cost-effective version, could be a long-term opportunity for Tesla. Preparations for Model Y started in Fremont in the second quarter.

Even though the earnings missed expectations, the company has improved, generated free cash flow and is sitting on more capital. “This quarter, we are simplifying our approach to guidance. We are most focused on expanding our manufacturing footprint in new regions, launching new products and continuing to improve the customer experience, while generating and using cash sustainably.” Click here for more information on trading Share CFDs, also, see our Index Trading page for information in trading Indicies.

Record-Highs in the Stock Market Global Stock Market Record Highs Amid geopolitical tensions, mixed earnings report and less-dovish central banks, this week, we still saw some more record highs in the stock market. Nasdaq Composite closed at a record high at 8,321.50 on Wednesday as technology stocks rallied on strong earnings, trade optimism, and a US budget deal at the beginning of the week. S&P 500 also traded at an all-time high at 3,019.56 on Wednesday, which brings its annual percentage change to 19.82%.

However, the momentum slowed down towards the end of the week with mixed earnings and less-dovish central banks. S&P500 widely regarded as the best single gauge of large-cap US stocks dropped by 0.50% while Nasdaq Composite finished 1% lower on Thursday. US500 (S&P500) – 15 Mins Chart Source: GO MT4 In the Australian share market, the All Ordinaries index, the oldest share index, which is made up of 500 largest companies listed on the ASX, reached an all-time at 6,901.90 on Thursday.

Source: Bloomberg Terminal The S&P/ASX200 was just 10 points away from its best close ever. Unlike the ECB, the RBA Governor Lowe was more dovish during his speech stating that “if demand is not sufficient, the Board is prepared to provide additional support by easing monetary policy further.” Major Earnings Reports As the week progressed, earnings went from being strong to mixed. Attention was mostly on the major companies from the FAANG Group.

Amazon: Amazon reported its quarterly updates after the closing bell, and shares of Amazon slipped by 2.5% in the after-hours trading. The company saw earnings of $2.6bn, and revenue was $63.4bn, which is up from the $52.9 billion a year ago. However, the figures came below estimates, and it is the first time Amazon reported income below analysts’ consensus.

The main highlight for Amazon was Prime Day, which was the largest shopping event in Amazon history. The weaker-than-expected profit is mostly due to the investment in expediting deliveries to Prime customers, which the company previously announced. The actual cost of speeding shipping was higher than anticipated, and it will be one of the key metrics investors will be monitoring for the next quarter.

Third Quarter 2019 Guidance Net sales are expected to be between $66.0 billion and $70.0 billion, or to grow between 17% and 24% compared with third-quarter 2018. This guidance anticipates an unfavourable impact of approximately 30 basis points from foreign exchange rates. Operating income is expected to be between $2.1 billion and $3.1 billion, compared with $3.7 billion in third quarter2018.

This guidance assumes, among other things, that no additional business acquisitions, investments, restructurings, or legal settlements are concluded. Source: Bloomberg Terminal Google: Google’s parent company, Alphabet, reported higher than expected revenue at a time where the tech giant is facing increasing scrutiny from the US regulators. The second-quarter revenue is $38.9 bn, which is a rise of 19% compared to 2018 Q2.

Its share price rose more than 7% in the after-hours trading. Source: Bloomberg Terminal Facebook: Facebook’s earnings beat forecasts despite data scandal. The 2019 figures include an additional $2.0 billion legal expense related to the U.S Federal Trade Commission (FTC) settlement. "We had a strong quarter and our business and community continue to grow," said Mark Zuckerberg, Facebook founder and CEO. "We are investing in building stronger privacy protections for everyone and on delivering new experiences for the people who use our services." We also note that Facebook struck a $5 billion settlement with the FTC following the 2018 Cambridge Analytica scandal.

Shares were on the downside despite upbeat results as the CFO expects “more pronounced deceleration in the fourth quarter and into 2020, partially driven by ad-targeting related headwinds and uncertainties”. Source: Bloomberg Terminal

The Main Headlines of the RBA August Statement By Philip Lowe, Governor: Monetary Policy Decision The Board decided to leave the cash rate unchanged at 1.00 per cent. The outlook for the global economy remains reasonable. The persistent downside risks to the global economy combined with subdued inflation have led a number of central banks to reduce interest rates this year and further monetary easing is widely expected.

The Australian dollar is at its lowest level of recent times. Inflation to increase gradually, but it is likely to take longer than earlier expected for inflation to return to 2 per cent. Wages growth remains subdued and there is little upward pressure at present, with strong labour demand being met by more supply.

Conditions in most housing markets remain soft, although there are some signs of a turnaround, especially in Sydney and Melbourne. It is reasonable to expect that an extended period of low-interest rates will be required in Australia to make progress. The Board will continue to monitor developments in the labour market closely and ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time