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CAD

06 Dec 2023

Pivot expectations go global

The greenback is staging a modest recovery this morning – not because traders are suddenly coming to the realization that Federal Reserve rate cut expectations have overshot, but because expectations for other central banks are falling even faster. Investors expect six rate cuts from the European Central Bank next year after German factory orders fell unexpectedly in October, adding to a mountain of evidence suggesting that the powerhouse of the euro area economy is in recession. Demand for manufactured goods fell -3.7 percent, coming in well below the 0.2-percent increase expected by economists as machinery and equipment orders plunged. In...

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05 Dec 2023

Cognitive dissonance in markets begins to correct

Risk-sensitive currencies are giving back some of last week’s gains this morning, tumbling in the face of a resurgent dollar. US Treasury yields are climbing and the greenback is pushing higher as investors begin to question whether the Federal Reserve will cut rates aggressively without a “hard landing” in the economy next year. With unemployment inching up, consumer spending showing clear signs of exhaustion, and business capital expenditures shifting into reverse, the typical indicators of a recession are blinking red, and data out this week—today’s Institute for Supply Management services survey, and Friday’s November non-farm payrolls report—could provide more evidence...

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04 Dec 2023

Pivot hopes carry markets higher

Markets are blithely ignoring Friday’s hawkish guidance from Jerome Powell. Risk-sensitive assets and high-beta currencies remain well-bid even after the Federal Reserve chair said it was “premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” with investors instead choosing to focus on a brief aside in which he acknowledged rates had been lifted “well into restrictive territory,” allowing policymakers to “proceed carefully”. Yields and the dollar are down and overnight index swaps are showing more than 125 basis points of easing priced in to the curve for 2024,...

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01 Dec 2023

Canadian jobs growth tops expectations, but details point to slowdown ahead

The Canadian job creation engine topped forecasts in November, firming expectations for another hold at the Bank of Canada’s meeting next week. 25,000 new positions were added in the month, with population growth and still-high participation rates pushing the unemployment rate to 5.8 percent, up from 5.7 percent in October. Consensus estimates had pointed to a 15,000 new hires, with unemployment rising to 5.8 percent. The finance, insurance, and real estate sectors – the most interest-rate sensitive areas of the Canadian economy – suffered the bulk of the losses, shedding 18,000 jobs in the month, and contributing the most to...

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01 Dec 2023

Canada’s economy is slowing.

With higher borrowing costs and slowing credit growth inflicting serious pain on Canada’s spectacularly indebted private sector, the economy appears poised for a hard landing. The direction of travel for residential investment is clearly down: after an early-2023 dead-cat bounce, prices and activity levels are subsiding across the country, and developers are moving to the sidelines. Energy prices are well off peak levels, and business confidence has fallen to post-pandemic lows. Per capita household consumption is falling as higher debt carrying costs eat into overall spending levels. Perhaps most critically, the labour market is weakening, with vacancies down about a...

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