By Fergal Smith
TORONTO (Reuters) -The Canadian dollar weakened on Monday against its U.S. counterpart, pulling back from an earlier one-month high, and bond yields rose as Canada‘s government lined up billions in new spending and said it would issue more long-term debt.
The loonie weakened 0.2% to 1.2532 to the greenback, or 79.80 U.S. cents, having touched its strongest intraday level since March 19 at 1.2471.
Canada‘s budget deficit is forecast to hit C$154.7 billion in the fiscal year ending next March, as Ottawa spends heavily to counter a third wave of COVID-19 infections and plans to bolster the economic recovery, the finance department said.
The share of bond issuance with a maturity of 10 years or greater is set to rise to 42% in the fiscal year ending next March from 29% the prior year. It was 15% before the crisis.
Investors were also looking ahead to a Bank of Canada interest rate decision on Wednesday. Analysts expect the central bank to announce it is cutting bond purchases from the current pace of C$4 billion per week.
The price of oil, one of Canada‘s major exports, was supported by a weaker U.S. dollar but gains were capped by concerns about the impact on demand from rising coronavirus cases in India. U.S. crude prices settled 0.4% higher at $63.38 a barrel.
Canadian government bond yields were higher across a steeper curve. The 30-year touched its highest since March 19 at 2.071% before dipping to 2.062%, up 7.7 basis points on the day.
(Reporting by Fergal SmithEditing by Chizu Nomiyama and Grant McCool)
Dollar catches footing as inflation pressures rates outlook
The dollar steadied on Monday after its steepest weekly loss in more than a month, as traders weigh the effect of inflation on the relative pace of looming rate hikes – with a wary eye on U.S. growth data and a European Central Bank meeting.
The greenback had softened, especially against the yen, after Federal Reserve Chair Jerome Powell said on Friday it was time to start cutting back asset purchases, though not yet time to begin raising interest rates.
His remarks came as investors have priced in Fed rate hikes starting in the second half of next year and yet have begun to trim long dollar positions in anticipation that other central banks could get moving even sooner.
On Monday, the dollar was firm at $1.1643 per euro and found a footing on the yen at 113.54 after Friday’s slide. The Australian and New Zealand dollars were held below the multi-month peaks they had scaled during last week. [AUD/]
The Antipodeans, along with sterling, had bounded ahead this month as traders scrambled to price in higher rates while inflation runs hot, with markets now eyeing a near 60% chance of a Bank of England hike next week.
Sterling was up 0.1% at $1.3772, but analysts were cautious about further gains especially as the Fed edges closer to tapering and policy tightening. The Aussie was steady at $0.7473 and the kiwi at $0.7157.
“Dollar risks remain skewed to the upside,” said Kim Mundy, a currency analyst at the Commonwealth Bank of Australia in Sydney.
“(Fed) members are slowly conceding that inflation risks are skewed to the upside (and) the upshot is that interest rate markets can continue to price a more aggressive Fed Funds rate hike cycle which can support the dollar.”
This week, Australian inflation data due on Wednesday is likely to set the tone for the next stage in a tussle between traders and a resolutely dovish central bank.
On Thursday, U.S. growth data is expected to show a slowdown in growth as consumer confidence has faltered, but a surprise on either side might have consequences for the interest rate outlook.
Also on Thursday the Bank of Japan and the European Central Bank meet. Neither are expected to adjust policy, but in Europe market gauges of projected inflation are at odds with the bank’s guidance.
In the background, traders remain nervous about trouble brewing at indebted developer China Evergrande Group. It surprised investors by averting default with a last-minute coupon payment last week, but other pressing debts loom.
China’s yuan held just shy of a five-month peak in offshore trade at 6.3804 per dollar. Cryptocurrencies were steady below the heights reached last week, with bitcoin up 2% at $62,000.
In emerging markets the beaten-down Turkish lira was braced for selling as state banks are expected to follow a surprise rate cut from the central bank.
Currency bid prices at 0110 GMT
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
$1.1645 $1.1646 -0.01% -4.69% +1.1649 +1.1626
113.7350 113.4900 +0.18% +10.07% +113.7400 +113.5750
132.45 132.17 +0.21% +4.35% +132.4500 +132.1200
0.9163 0.9162 +0.00% +3.56% +0.9169 +0.9157
1.3771 1.3756 +0.13% +0.81% +1.3775 +1.3752
1.2362 1.2368 -0.03% -2.90% +1.2379 +1.2358
0.7478 0.7470 +0.11% -2.79% +0.7478 +0.7465
Dollar/Dollar 0.7161 0.7150 +0.15% -0.29% +0.7162 +0.7148
Tokyo Forex market info from BOJ
(Reporting by Tom Westbrook; Editing by Sam Holmes)
Oil prices on the march again in tight market; U.S. crude at 7-yr high
Oil prices rose on Monday, extending pre-weekend gains, with U.S. crude hitting a seven-year high as global supply remained tight amid strong demand worldwide as economies recover from coronavirus pandemic-induced slumps.
Brent crude futures climbed 26 cents, or 0.3%, to $85.79 a barrel at 0048 GMT, following on from last Friday’s 1.1% gain. The contract was near a three-year high of $86.10, hit last Thursday.
U.S. West Texas Intermediate (WTI) crude futures rose 48 cents, or 0.6%, to $84.24 a barrel, after climbing 1.5% on Friday. It touched its highest since October 2014 – $84.28 – earlier in the session.
“Bullish sentiment continues to support oil prices as global supply remains tight at a time when demand is recovering from the pandemic,” said Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd.
“But immediate gains for the WTI’s nearest-term contract may be limited given steepening backwardation,” Tazawa said.
WTI futures contracts are currently in steep backwardation, meaning later-dated contracts trade are at a lower price than the current contract. Normally later months trade at a higher price, reflecting the costs of storing oil.
Oil prices have also been bolstered by worries about coal and gas shortages in China, India and Europe, which spurred fuel-switching to diesel and fuel oil for power.
Reflecting strong market sentiment, money managers raised their net long U.S. crude futures and options positions in the week to October 19, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.
Over the weekend, Saudi Arabia’s crown prince said that the world’s top oil exporter aims to reach ‘net zero’ emissions of greenhouse gases, mostly produced by burning fossil fuels, by 2060 – 10 years later than the United States.
Meanwhile U.S. energy firms last week cut oil and natural gas rigs for the first time in seven weeks even as oil prices rose, energy services firm Baker Hughes Co said in its closely followed report on Friday.
(Reporting by Yuka Obayashi; Editing by Kenneth Maxwell)
Copper's Wild Week Throws Spotlight on Straining World Economy – BNN
(Bloomberg) — For months, the copper market has been caught in a tug of war between steadily shrinking supplies on one side, and an increasingly strained global economy on the other.
This week, the rope snapped.
Buyers on the London Metal Exchange, caught off guard by a sudden emptying of available copper in its warehouses, drove spot prices to record levels over futures Monday, prompting the exchange to take emergency measures. Trafigura Group, which Bloomberg reported was responsible for much of the withdrawals that sparked the wild moves, said it ordered metal to ship to customers who need it in Europe and Asia — supporting the argument that supply really is tight.
Read more about the LME squeeze and how it played out
By Thursday, copper was moving in the opposite direction. Futures tumbled by the most in four months, dropping with other industrial metals as investors focused on the potential hit to demand from weakness in China’s economy and the looming debt crisis at China Evergrande Group.
For anyone looking for clues on the world’s economies, changes in the supply and consumption of copper can provide valuable insight into how much factories are producing and consumers are buying.
The metal’s vast array of uses in all corners of manufacturing, construction and heavy industry mean that the market is highly sensitive to shifts in economic activity. And as the biggest consumer and producer, China is particularly key for copper.
Traders like Trafigura have been saying for months that the tight supplies could help push copper prices to fresh records. On the other hand, some investors and banks have turned on copper, as the threat of power shortages and factory slowdowns from the global energy crisis cast a pall over the outlook and weighed on prices.
Read more: Copper Bulls Get an Electric Shock as World’s Factories Slow
It’s hard to overstate the drama that played out on the copper market this week, and while inventories have ticked up a little in recent days, they remain at critically low levels. It’s not just the LME, supplies have shrunk too on rival bourses in China and the U.S.
So is the world as short of copper as the LME squeeze would suggest?
The first key point is that most of the world’s copper doesn’t actually pass through exchange warehouses — factories source their metal directly from producers or traders in long term contracts.
However, the reason that exchange inventories are so low in the first place is that supply from smelters has been falling badly short of demand, and power constraints in China are only adding to the problem.
That, combined with buoyant demand as economies seek to emerge from the pandemic, has drained stockpiles throughout the supply chain, with consumers’ yards and off-exchange warehouses also running low. At the same time, shipping delays and other logistical hurdles make it increasingly difficult to get metal where it’s needed.
Ultimately, the copper market remains physically tight, though it probably isn’t as strong as the substantial drawdown in LME inventories would suggest, Duncan Hobbs, head of research at metals trading house Concord Resources Ltd, said by phone from London.
With logistical problems, shortages and rising prices roiling the world economy, the question for traders is how much that will crimp demand for raw materials like copper. China’s economy slowed rapidly in the third quarter under the stress of a property slump and electricity shortages, while inflationary pressures are mounting around the world, squeezing both consumers and manufacturers.
For now, though copper demand in China has weakened, “supply has even weakened more,” said Eric Liu, head of trading and research at ASK Resources Ltd. Elsewhere, traders say demand in Europe and the U.S. is still holding steady for now, and the logistical bottlenecks that have snarled global supply chains show no signs of letting up.
“With the persisting power crisis, inventories will remain low,” Liu said.
©2021 Bloomberg L.P.
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