Markets:
- gold up $23 or 0.86% at $2760 99
- WTI crude oil up $1.74 or 2.54% $70.33
- 2-year yield 4.1511%, up 0.2 basis points
- US 10-year yield 4.269% up 4.8 basis points. The increase comes despite a stellar note auction with yields rising by -1.7 bps, bid to cover comfortably above the 6 month average at 2.70X vs 2.55X. Domestic demand was above average and international demand was right on average.
US stock indexes saw the Dow move lower, but the Nasdaq rose 1.77% to a new record and closed above 20K for the first time ever. The S&P was trading above the closing high near 6090, but went back to the close.
- Dow fell -99.27 points or -0.22% at 44,148.56
- The S&P 500 rose 49.28 points or 0.82% at 6084.19
- The Nasdaq rose 347.65 points or 1.77% at 20,034.89
- The Russell 2000 rose 11.38 points or 0.48% at 2,394.16
In the forex, the USD is higher than the major currencies except the CAD (USD fell -0.14%). The greenback rose the most vs the JPY (0.37%), the EUR (0.30%) and the NZD (0.24%).
The USD fell against the CAD despite the Bank of Canada cutting rates by 50 basis points as expected to 3.25% from 3.75%. The central bank has now cut 175 basis points from its first cut in June 2024. The last two meetings have seen a decline of 100 basis points after 3 consecutive cuts of 25 basis points.
- A previous statement said: “If the economy changes substantially in line with our latest forecast, we intend to reduce the policy rate further” but that was dropped.
- The current statement says “Going forward, we will assess the need for further reductions in the policy level one decision at a time”
- The current statement says “The Governing Council has reduced the policy rate significantly since June.”
From his opening statement at the Macklem press conference:
- With the policy rate now significantly lower, we expect a more gradual approach to monetary policy if the general economy turns out as expected.”
- It was noted that Q3 GDP growth was lower than BOC expected and Q4 was also lower
- He said the Canadian labor market is still shrinking
- Consumers and housing both improved in Q3 as lower rates boosted consumption
- Reduced immigration targets suggest 2025 growth will be slower than BOC's forecast
- The economic outlook is clouded by the possibility of new tariffs on Canadian exports to the United States, which Macklem says is a “big new uncertainty.”
BOCs Macklem said in his Q&A that the central bank considered both 25 and 50 basis rate cuts before finally deciding on a 50 bps reduction. That the decision was driven by two main factors:
- The need to leave a limited policy area. and
- Economic data points to a softer GDP growth outlook compared to October estimates.
Lower immigration targets have been cited as a factor behind slower-than-expected growth, while the potential for tariffs on Canadian exports adds to the uncertainty, although the bank stressed that they can base a policy on speculative risks.
Macklem admitted that the economy is still oversupplied with soft signs, but the widespread job losses that are typical of a recession have not occurred. The weakness of the Canadian dollar has largely come from the strength of the US dollar and must be factored into future forecasts. Housing market dynamics are being watched closely, influenced by immigration and rate cuts.
The USDCAD initially moved lower (CAD higher) as markets reacted to the 4-year highs and recognized that the pace of cuts was going to slow, but the pair recovered as the a day ahead (cutting some CAD benefits).
Technically, the price of the USDCAD moved to – and through – the swing area target at 1.4145 and the rising 100 times MA but could not sustain a downward movement and jump back above these levels (the 100-hour MA is at 1.4135 and moving higher). The pair is trading at 1.4162 going into the close. A move back below 1.4145 and the 100-hour MA could see further selling with a swing area at 1.4089 to 1.4104 as the next target support. A move above 1.4177 would disappoint sellers looking for corrective selling.
Higher crude oil mobility is generally good for CAD. Crude oil is up $1.75 or 2.55% today, at $70.34 today. Its 100-day MA at $71.65 is the next major upside target. However, the move higher today had little impact.
In the US today, the CPI data came in as expected at 0.3% for both the headline and headline readings. Although expected, the core has now increased by 0.3% for 4 consecutive months slowing the decline and leaving the YoY core well above the 2% target at 3.3%. The headline moved up to 2.7% from 2.6% the previous month. Nevertheless, the market was largely set that anything as expected or better would allow the Fed to change policy lower. A 25 basis point cut of up to 95% is expected when the Fed meets next Tuesday and Wednesday.
The ECB meets tomorrow and is expected to cut rates by 25 basis points to 3.15% from 3.4%. That decision will be announced at 8:15 AM ET and the press conference is expected to begin at 8:45 AM ET.
The EURUSD was down, up and back down again. The pair remained below the 200 hour MA at 1.05322 after two tests of the MA line found willing sellers. The price is trading below 1.0500 into the close with support below at 1.0448 to 1.0461.
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