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CAD

01 Dec 2023

But strategically defensive.

We think the loonie will struggle to sustain any gains achieved in the coming months and could push above the 1.40 mark in the early new year as the lagging effects of last year’s increase in borrowing costs hit home. Although we expect a modest recovery toward the end of 2024 – mostly driven by a broader easing in global financial conditions – we remain bearish on the loonie over longer time horizons. Canada faces serious and long-term economic challenges, with overvaluation in real estate markets, spectacularly-high private sector debt levels, poor productivity, and an outsized government sector likely to...

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30 Nov 2023

North American growth trajectory softens, supporting lower yields

US consumer spending softened, income growth slowed, and the Federal Reserve’s preferred inflation measure decelerated as expected in October, adding momentum to the massive decline in yields seen since Governor Waller put “mechanical” rate cuts on the table earlier in the week. Data released by the Bureau of Economic Analysis this morning showed the core personal consumption expenditures index – targeted by central bankers – flatlining in October relative to the prior month, up 3.5 percent year-over-year – aligning perfectly with consensus estimates. The overall personal consumption expenditures index was up 3 percent from a year ago. Speaking at an...

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30 Nov 2023

Uneasy calm prevails ahead of US data

Currency markets are marking time ahead of data that is expected to show US economic activity slowing from the pace set in the third quarter. The October personal income and spending report should show signs of an across-the-board deceleration, with weaker wage growth and increasing consumer restraint translating into softer inflation rates. Increases in the Federal Reserve’s preferred measure – the core personal consumption expenditures index – are seen falling to 0.2 percent month-over-month, down from 0.3 percent previously, and 3.5 percent year-over-year, versus the prior 3.7 percent. This would put underlying inflation pressures on track toward undershooting the central...

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29 Nov 2023

Canada’s Sahm Of All Fears

The Sahm Rule, named after former Federal Reserve and Council of Economic Advisors economist Claudia Sahm, indicates that a US recession has begun when the 3-month moving average of the national unemployment rate rises by 0.5 percentage points or more relative to its low during the prior 12 months. As outlined in a previous piece, it has not yet reached that threshold in the United States. In Canada, a slightly higher threshold is needed – calculations are performed differently in each country, and the level of unemployment is typically higher north of the border. Claudia addressed this in a 2021...

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29 Nov 2023

Rate cut bets solidify, pushing global markets higher

Markets are high on rate-cut hopium again this morning, with risk-sensitive assets extending a rally that began yesterday when Federal Reserve Governor Waller set the stage for a policy pivot in early 2024. In a speech and interview, the erstwhile hawk said he was “increasingly confident that policy is currently well-positioned to slow the economy and get inflation back to 2 percent,”—indicating that the central bank’s rate-setting committee was unlikely to raise rates further—before suggesting that a “hard landing” wouldn’t necessarily be needed to prompt rate cuts. If the decline in inflation continues “for several more months… three months, four...

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