Weekly Chartbook
Sovereign risk isn’t likely to impact US rates. Oil markets are trading defensively. Inflation drivers have shifted. Retail sales remain far above pre-pandemic trend levels. China’s property bubble is still deflating.
Off the Charts
Trade whack-a-mole
Based on this morning’s data from the Census Bureau, one could be forgiven for imagining that the trade tariffs implemented under the Trump administration – and kept largely intact under Biden – are working. The US goods deficit in the first nine months of the year shrank relative to the same period in 2022. And although Mexico’s share of US merchandise imports dipped slightly relative to China’s in September, it remained well ahead on a 12-month rolling average basis. Calls to eliminate trade deficits by applying across-the-board 10-percent tariffs – growing louder on the campaign trail ahead of the 2024...
Weekly Chartbook
Labour market slack is shrinking. Fed expectations have fallen sharply. Bank of Canada projections have dropped more significantly. But economic surprise gaps are still very wide. Underlying growth signals are surprisingly stable. And rate differentials remain dollar-supportive. US economic policy uncertainty has fallen to record lows… huh?
All together now
With incoming economic data softening across North America, market projections for central bank policy paths have shifted significantly in the last few weeks. In contrast with implied market pricing on October 18 – when the Federal Reserve was seen delivering at least one, maybe two cuts by November 2024, even as the Bank of Canada was expected to keep rates on hold – the US is now seen slashing rates at least three times, while Canada is expected to cut at least twice. To us, this has reduced mispricing embedded in dollar-Canada rate differentials, and has temporarily reduced downside risks...
Sahm-thing is going wrong
Market reaction to this morning’s non-farm payrolls report looks slightly overdone, with price action heavily position-driven. The long-dollar trade had unquestionably become overcrowded, and many investors are now desperately trying to top-tick long-term yields, with buying activity surging in the belief that they have peaked. Many of the underlying details still look stable, and widespread strike activity through late September and early October likely subtracted more than 50,000 roles from the headline print, leaving three-month job creation rates remaining relatively strong. It is very unlikely that the US economy is currently in recession. The Sahm Rule, named after former Federal...