Analysts at BBH suggest that the focus this week will be on the Bank of Canada meeting, which is not often thought to have global implications, especially given that policy will remain on hold.
“The reason we think it is important is that the Bank of Canada with two rate hikes this year is seen as the epitome of “end of divergence” meme that seemingly became consensus.”
“The Bank of Canada hiked the overnight lending rate by 25 bp in July and again in September. Initially, the market moved to price in a hike on October 25. As recently as mid-September the market was discounting more than a 50% chance of a hike at this month’s meeting and a nearly 75% chance of a hike by the end of the year.”
“Guided by official comments and some softer data, the market has reconsidered. Interpolating from the Overnight Index Swaps, Bloomberg estimates that the market is now discounting less than a one-in-five chance of a hike in the week ahead and a little more than a one-in-three chance of a hike this year.”
“The rate hikes that were delivered were not the beginning of a monetary tightening cycle like the Fed has entered. The two rate hikes were taking back of the precautionary cuts delivered in 2015 as the economy coped with the drop in oil prices and the terms of trade shock.”