Archives of “January 22, 2020” day

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European shares are ending the session in the red

  
Analysis, Global Indices
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Major indices move lower in trading today

The major European stock indices are closing the day in the red, erasing earlier gains.
The provisional closes are showing:
  • German DAX, -0.3%. It was up about 0.60% the highs
  • France’s CAC, -0.6%. It reached the high of +0.40%
  • UK’s FTSE, -0.6%. It peaked at +0.36%
  • Spain’s Ibex, -0.4%. It was up around 0.22% at the highs
  • Italy’s FTSE MIB -0.6%.  It rose by 0.29% at session highs
In the European debt market, the benchmark yields are mostly lower. France 10 year notes move back below the 0.0% level and is trading at -0.007% currently (low yield reach -0.019%).
Major indices move lower in trading today_

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Full text of the January 22, 2020 Bank of Canada rate decision

  
  Analysis
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The latest Bank of Canada decision

  • Prior statement here

Bank of Canada maintains overnight rate target at 1 ¾ percent

The Bank of Canada today maintained its target for the overnight rate at 1 ¾ percent. The Bank Rate is correspondingly 2 percent and the deposit rate is 1 ½ percent.The global economy is showing signs of stabilization, and some recent trade developments have been positive. However, there remains a high degree of uncertainty and geopolitical tensions have re-emerged, with tragic consequences. The Canadian economy has been resilient but indicators since the October Monetary Policy Report (MPR) have been mixed.

Data for Canada indicate that growth in the near term will be weaker, and the output gap wider, than the Bank projected in October. The Bank now estimates growth of 0.3 percent in the fourth quarter of 2019 and 1.3 percent in the first quarter of 2020. Exports fell in late 2019, and business investment appears to have weakened after a strong third quarter. Job creation has slowed and indicators of consumer confidence and spending have been unexpectedly soft. In contrast, residential investment was robust through most of 2019, moderating to a still-solid pace in the fourth quarter.

Some of the slowdown in growth in late 2019 was related to special factors that include strikes, poor weather, and inventory adjustments. The weaker data could also signal that global economic conditions have been affecting Canada’s economy to a greater extent than was predicted. Moreover, during the past year Canadians have been saving a larger share of their incomes, which could signal increased consumer caution. This could dampen consumer spending but help to alleviate financial vulnerabilities at the same time.

Looking ahead, Canadian business investment and exports are expected to contribute modestly to growth, supported by stronger global activity and demand. The Bank is also projecting a pickup in household spending, supported by population and income growth, as well as by the recent federal income tax cut. In its January MPR, the Bank projects the global economy will grow by just over 3 percent in 2020 and 3 ¼ percent in 2021. For Canada, the Bank now forecasts real GDP will grow by 1.6 percent this year and 2 percent in 2021, following 1.6 percent growth in 2019.

While the output gap has widened in recent months, measures of inflation remain around 2 percent. This is consistent with an economy that, until recently, has been operating close to capacity. The Bank expects inflation will stay around the 2 percent target over the projection horizon, with some fluctuations in 2020 from volatility in energy prices. Meanwhile, labour markets in most regions have little slack and wages continue to firm.

In determining the future path for the Bank’s policy interest rate, Governing Council will be watching closely to see if the recent slowdown in growth is more persistent than forecast. In assessing incoming data, the Bank will be paying particular attention to developments in consumer spending, the housing market, and business investment.

Bank of Canada leaves rates unchanged at 1.75% as expected

  
  Analysis
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Highlights from the Bank of Canada rate decision and MPR:

  • Prior was 1.75%
  • BOC removes description of key rate as ‘appropriate’
  • In determining future path for rates will watch losely “to see if the recent slowdown in growth is more persistent than forecast”
  • Canadian economy has been resilient but indicators since Oct MPR have been mixed
  • Output gap will be wider than expected in October
  • Canadian economy no longer operating close to capacity
  • Indicators of consumer confidence and spending have been unexpectedly soft
  • Business investment appears to have weakened after a strong third quarter
  • Residential investment was robust through most of 2019, moderating to a still-solid pace in the fourth quarter
  • BOC projects the global economy will grow by just over 3% in 2020 and 3.25% percent in 2021
  • BOC forecasts Canadian GDP will grow by 1.6% and 2% in 2021, following 1.6% growth in 2019
  • BOC expects inflation will stay around the 2 percent target over the projection horizon
This is dovish stuff.
The final paragraph:
In determining the future path for the Bank’s policy interest rate, Governing Council will be watching closely to see if the recent slowdown in growth is more persistent than forecast. In assessing incoming data, the Bank will be paying particular attention to developments in consumer spending, the housing market, and business investment.
The previous statement said:
Based on developments since October, Governing Council judges it appropriate to maintain the current level of the overnight rate target. Future interest rate decisions will be guided by the Bank’s continuing assessment of the adverse impact of trade conflicts against the sources of resilience in the Canadian economy – notably consumer spending and housing activity. Fiscal policy developments will also figure into the Bank’s updated outlook in January.

Poloz will be asked at the press conference at 1615 GMT if the removal of the word ‘appropriate’ is a signal. The BOC often downplays changes in the statement and says that every meeting starts with a blank page so that might reel in some of the CAD declines but the overall message is undoubtedly dovish but they’re not yet teeing up a rate cut.

The rates market pulls back BOE rate cut pricing for next week

  
  Analysis
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Odds of a 25 bps rate cut on 30 January falls below 50% from ~70% on Friday

WIRP UK

The pound is pushing higher now as the rates market is suddenly beginning to be less convinced of a BOE rate cut next week. The pricing was still around ~57% less than a half-hour ago but it has dropped further as UK post-election data shows some optimism.
Essentially, this is also the market saying that they are leaning towards post-election PMI data to tip the scales towards no rate cut on 30 January.
Cable has now risen back above 1.3100 to session highs of 1.3120 and is challenging resistance from last week around 1.3118. If buyers can break above that, there is a good chance for the pound to run further towards 1.3150 next.
Ahead of the BOE next week, any rate pricing less than 70% odds tends to see the central bank not being forced into taking action but no doubt the meeting will still be a live one.
That is something to take into account in case the BOE does “surprise” with a rate cut.

Trump on auto tariffs: I have a date in my mind, it is a fairly quick date

  
  Analysis

Trump not shying away from tariffs if he can’t get a deal with the EU

  • Thinks that a deal will be struck with the EU before the US election
  • Says that he is considering extending additional travel ban to other countries
Something for euro traders to take note of in case this starts to bubble up over the coming months, if trade negotiations continue to go nowhere that is.
Trump

US president Trump: The dollar is very strong

  
  Analysis

Trump is speaking to CNBC in an interview

  • Interest rates in the US should be lower
  • Says that he is disappointed in Boeing
He’s no doubt taking more jabs at the Fed with the remarks above.
At the same time, there are headlines also quoting him via Fox Business in saying that “we are going to be doing a middle class tax cut, a very big one”. Adding that they will be announcing the details over the next 90 days.
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