Headlines

* Stocks tank to kick off September as slowdown fears pick up again

* BoJ Governor reiterates bank will lift rates if outlook realised

* Waning economic growth expected to keep BoC on rate cutting path

* Treasury yields slid as investors weigh slowing growth fears

FX: USD modestly extended its rebound to a two-week high with poor risk sentiment and dollar short covering helping. Subdued ISM data, with higher prices but lower new orders, hit stocks and supported the buck against risk-on, cyclical currencies. But lower US rates and slowing growth momentum may weigh over the medium term.

EUR dipped below support at 1.1071 on dollar buying. There are inevitable divisions among ECB policymakers, with some growing more concerned about recession amid weakening activity in Germany, and others more troubled by stubborn inflationary pressures. Next support is around 1.0990/74.

GBP looked to be breaking down with the July top in sight at 1.3044 before losses were pared. Sticky wages and some price pressures, along with better growth momentum should see sterling supported. The BoE is likely to stand pat at its meeting this month, while other central banks ease policy.

USD/JPY fell as the yen outperformed, though it gave back some gains through the session. BoJ Governor Ueda submitted a report to the government restating that the central bank will tighten rates further if the economy develops as anticipated. Doubts about further policy normalisation rose after the volatility at the start of August. The yen carry trade unwind is being talked about again.

AUD was the major underperformer as it lost support around 0.6751. Focus is on Australia Q2 GDP data released today. USD/CAD moved higher though the loonie outperformed its commod-dollar peers. Short covering has faded. All eyes are on the BoC meeting later.

US Stocks: Stocks tumbled with tech leading the losses. The S&P 500 lost 2.12% to settle at 5528. The tech-heavy Nasdaq 100 fell 3.15% to finish at 18,958. The Dow closed 0.97% lower to close at 18.747. Semis and Nvidia led tech lower as it fell 9.53%, through the retracement level (38.2%) of the June sell-off at $109.82 and its 100-day SMA at 110.34. September is typically the worst month for stocks, and especially technology. Energy also underperformed as Brent crude dropped over 4.5% and close to the December low at $72.49. Real estate and consumer staples were the only sectors in the green. Tesla held up relatively well the EV-maker said it planned a six-seat variant of its Model Y electric vehicle which will start production in China from late 2025.

Asian stocks: Futures are in the red. Asian stocks traded mostly lower with trade cautious ahead of the US return from holiday. The ASX 200 slid with losses cushioned by tech and energy. The Nikkei 225 trimmed initial gains as the yen fluctuated. The Hang Seng and Shanghai Composite were both muted with real estate continuing to weigh.

Gold fell to a low of $2473 before rebounding to close at $2491. The previous July record high is at $2483 and the May top at $2450. The dollar was marginally higher on the day but bonds rose so yields fell.

Day Ahead –Australia GDP and Bank of Canada rate decision

Australia Q2 GDP is expected to print at 0.2%, which would mean the weakest annual growth momentum since the early 1990s recession. That annual figure is predicted at 0.9%. Domestic demand remains weak and household spending points to soft but positive consumption, supported by migration-led population growth. The RBA is more concerned about inflation at the moment.

Markets have fully priced in another BoC 25bps rate cut. This would be the third such move in a row, with more to come. The bank’s two preferred core inflation measures have slowed further since July. Employment is growing more slowly than labour supply. A dovish leaning statement and press conference is expected to support market bets that rates will continue to be cut.  

Chart of the Day – AUD/CAD breaking down?

We don’t often look at the crosses but AUD/CAD will be in the crosshairs today with data and the BoC meeting. It’s the battle of comm-dollars and cyclical currencies which has been a stalemate for the past two weeks or so. Prices have tracked sideways between two retracement levels at 0.9106 and 0.9175. The 50-day SMA has also acted as support, currently at 0.9116.

But the aussie suffered yesterday and the pair is moving out of that recent range. Below is the 100-day SMA at 0.9075 ahead of the 50% level of the July/August sell-off at 0.9058.