The Asian equity markets failed to retain the early gains that had at least partially been fueled by the US equities recouping half of their losses. The MSCI Asia-Pacific Index lost about 1.7% and finished at new 3.5 year lows.   

European markets are posting minor gains, with the Dow Jones Stoxx 600 up about 0.25% after hitting 15-month lows yesterday. The gap created by yesterday’s lower opening has not been entered. This is also true of several national bourses, including Germany’s DAX and the French CAC.  

The foreign exchange market is also eerily calm. Most major currencies are little changed against the US dollar and emerging market currencies narrowly mixed. The Canadian dollar is the strongest of the majors, gaining about 0.25% against the greenback.After the Bank of Canada had defied expectations by not cutting interest rates, the Canadian dollar finished the session higher, despite the large drop in oil prices.We suggest that the dramatic narrowing of the Canadian interest rate discount to the US helped explain the Canadian dollar’s resilience,  The US dollar low for this week was near CAD1.4430, and that is where initial support is pegged.    

Tomorrow Canada reports retail sales and CPI. Neither report will likely have much impact on policy expectations.  Retail sales, excluding autos, have not risen since June but are forecast to increase by 0.4% in November.We suspect the risk is on the downside.Headline CPI is expected to fall by 0.4%, but last December it fell by 0.7%.  This means that the anticipated monthly decline would still see the year-over-year rate increase from 1.4% to 1.7%.A 0.3% decline in the core rate though will keep the year-over-year rate steady at 2.0%. 

The Canadian dollar may also be at the mercy of oil prices. Yesterday’s API figures showed a 4.6 mln barrel build of inventories, offsetting the 3.9 mln barrel drop the previous week.EIA figures will be released later today, delayed a day due to the US holiday at the start of the week.