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19 Sep 2023

US Fed in focus

• Some jitters. Rising oil prices & higher Canadian inflation boosted bond yields. Equities were flat. The USD consolidated & AUD ticked up.• US Fed. No policy change is anticipated tomorrow. Focus will be on the Fed’s guidance & forecasts. Markets are already pricing a ‘higher for longer’ view.• Event radar. In addition to the US Fed over the next few days UK CPI (today) is released & the BoE meets (tomorrow). The BoJ meeting is on Friday. A few jitters across markets overnight ahead of tomorrows US Fed decision and press conference (4am and 4:30am AEST). Equities were flat...

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Slippery relationships

Expectations for more tightening from the Bank of Canada have shot up since this morning’s hotter-than-anticipated inflation report, with at least one hike priced in by the March meeting in early 2024. The loonie has jumped even more aggressively, reflecting oversold conditions going into the release (which were arguably reinforced by the psychological bias known as “round number anchoring” around the 1.35 mark) and a supportive oil-price backdrop. But don’t expect the effect to last.  For much of the last few decades, the Canadian dollar seemed to act like a “petro-loonie”, with oil prices playing a big role in driving...

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Canadian inflation accelerates, shaking bets on policy hold

Canadian inflation accelerated in August, but gasoline prices drove much of the gain and many underlying price indicators continued to soften, helping ratify the Bank of Canada’s cautiously hawkish, data-dependent stance. Data released by Statistics Canada this morning showed the Consumer Price Index rising 4 percent on a year-over-year basis in August, up from the 3.3 percent increase recorded in July, and slightly above consensus expectations. On a month-over-month basis, the change climbed to 0.4 percent – beating market forecasts that had been set closer to the 0.2 percent mark. Gasoline prices rose 4.6 percent month-over-month, and the energy sub-index...

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Volatility crumples into central bank deluge

Measures of market turbulence are falling ahead of a slew of central bank decisions, suggesting that investors feel confident in rates nearing a peak for the current cycle. Over the coming days, the Federal Reserve is expected to stay on hold and adjust its “dot plot” projections to show rates remaining high for longer. Another hike from the Bank of England is narrowly favoured in fixed-income markets, but growing signs of economic weakness could push the vote and accompanying statement in a more dovish direction. The Bank of Japan is considered unlikely to change its policy settings, with traders instead...

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