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The Bank of Canada Shows It’s the Federal Reserve of the North

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canada
  • The Bank of Canada Shows It’s the Federal Reserve of the North

A North American central bank hiking rates in the face of strong job growth and deteriorating core inflation rates, citing temporary factors for the drop-off in price pressures.

No, it’s not Janet Yellen’s Federal Reserve — it’s Stephen Poloz’s Bank of Canada.

On Wednesday, the Bank of Canada delivered its first interest-rate hike in almost seven years, becoming the first Group of Seven central bank to join the Fed in policy normalization, the first concrete step toward global monetary policy convergence. And it followed the Fed in more ways than one.

The Bank of Canada now sees inflation averaging 1.6 percent, down three tenths of a percentage point from its April Monetary Policy Report. At the same time, the bank estimates economic slack will be eliminated by the end of 2017, sooner than it had anticipated three months ago. That’s an echo of the Fed’s move in June, which saw officials mark down their forecast for the unemployment rate forecasts and core PCE inflation, its preferred gauge of price pressures.

For Janet Yellen, Verizon has been the big headache in suppressing inflation. Stephen Poloz and Canadian policymakers attributed the shortfall to sluggish food inflation, measures by the Ontario government to reduce the cost of electricity and a significant slowdown in auto price gains.

Core Measures

The bank’s three core measures of inflation were designed by officials in part to filter out exactly these sector-specific shocks. However, they’ve proven unable to fully do so, contributing to a downward trend in all three metrics since early 2016.

The bank’s Monetary Policy Report even alluded to an Amazon effect potentially contributing to subdued inflation globally, just as Chicago Fed President Charles Evans did in late June.

“The rise of e-commerce may also have heightened retail competition, by enabling retailers to compete across national borders, thus changing pricing behavior and making prices more sensitive to new information and global market conditions,” the bank’s Governing Council wrote in its opening statement before Wednesday’s press conference.

Steeled Resolve

Canada’s best quarter for employment gains since 2010 and broadening economic growth bolstered the central bank’s confidence in the outlook and steeled its resolve to increase interest rates. As such, the Fed and Bank of Canada are expected to lead the charge away from the zero lower bound. That’s after an onslaught of hawkish rhetoric from top Canadian monetary policymakers over the past month.

Historically, the two central banks’ policy rates have moved in sync. However, a Canadian credit cycle that’s completely divorced from that of its largest trading partner in the wake of the financial crisis, a weakened link between U.S. demand and Canadian exports, and the plummet in oil prices starting in mid-2014 has prompted policy to decouple this decade.

The Bank of Canada and Fed have different government-appointed directives: the U.S. central bank has a dual mandate for full employment and stable inflation; its Canadian counterpart targets only the latter. At this juncture, both are fundamentally relying heavily on unobservable constructs to justify the removal of monetary stimulus in the face of subdued price pressures.

Yellen still puts faith in the Phillips Curve, which suggests that an unemployment rate that sinks beyond a sustainable level will foster higher wages and price pressures broadly.

Poloz’s basis for tightening rests upon his outlook for the output gap — the cumulative difference between the central bank’s estimate of how fast the economy can grow and how fast it has — buttressed by the notion that central bank policy changes influence economic activity with a lag. A zero output gap is consistent with an economy that’s operating at full capacity with stable inflationary pressures.

“It is the output gap which guides the pressures on inflation through time,” the governor said in the press conference following his first rate decision in 2013.

While using slightly different compasses, Poloz and Yellen have the same rationale in mind: easing up on monetary accommodation now — despite the current lack of success on their government-appointed inflation mandates — will help avoid a situation in which they fall behind the curve and need to tighten policy swiftly to tamp down on inflation, sending their respective economies into recession.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Global Oil Drops as Coronavirus Infections Rises in India and Other Nations

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Crude oil

Oil prices declined on Monday during the Asian trading session amid rising concerns that the surge in coronavirus in India and other nations could force regulators to enforce stronger measures at curbing its spread and eventually affect economic activity and drag on demand for commodities like crude oil.

Brent crude oil, against which Nigerian oil is priced, declined by 22 cents or 0.33 percent to $66.55 per barrel at 8:19 am Nigerian time on Monday, following a 6 percent surge last week.

The US West Texas Intermediate (WTI) declined by 18 cents or 0.29 percent to $62.95 per barrel, after it gained 6.4 percent last week.

The decline was after India reported 261,500 new coronavirus infections on Sunday, taking the country’s total cases to almost 14.8 million, second to only the United States that has reported over 31 million coronavirus infections.

“With … a resurgence of virus cases in India and Japan, topside ambitions continue to run into walls of profit-taking,” said Stephen Innes, chief market strategist at Axi.

Businesses in Japan believed the world’s third-largest economy will experience a fourth round of coronavirus infections, with many bracing for an additional slow down in economic activity.

While Japan has had fewer COVID-19 cases when compared with other major economies, concerns about a new wave of infections are fast rising, according to responses in Reuters poll.

On Tuesday, April 20, 2020, Hong Kong will suspend all from India, Pakistan and the Philippines because of imported coronavirus infections, authorities stated in a statement released on Sunday.

India’s COVID-19 death rose by a record 1,501 to hit 177,150.

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Global Markets Near Record Peaks and Will Get Stronger: deVere CEO

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Stocks

As the FTSE 100 hits 7,000 points for the first time since the Covid pandemic, global stock markets are poised to “get even stronger”, says the CEO of one of the world’s largest independent financial advisory and fintech organisations.

The observation from Nigel Green, the chief executive and founder of deVere Group, comes as London’s index jumped over the important threshold in early trading in London, gaining over 0.5% to 7024 points.

Mr Green notes: “London’s blue-chip index is up 40% since the worst lows of the pandemic.

“This landmark moment represents the wider optimistic sentiment gripping global markets which are near record peaks.

“We can expect global stock markets to get even stronger as investors look to seize the opportunities from economies reopening.

“They are looking towards economies rebounding in a post-pandemic era due to the monetary and fiscal stimulus, pent-up cash and demand, and strong corporate earnings.

“The current ultra-low interest rate environment and the under-performance of bonds will also act as a catalyst for stock markets.”

However, the CEO’s bullish comments also come with a warning.

“I would urge investors to proceed with caution as there are some headwinds on the horizon, including relations between the U.S. and China, the world’s two largest economies, which could be coming to a tipping point in coming weeks.

“As such, in order to capitalise on the opportunities and mitigate risks, investors must ensure proper portfolio diversification.”

Mr Green concludes: “A variety of factors are going to drive global stock markets. Investors will not want to miss out and should work with a good fund manager to judiciously top-up their portfolios.”

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Refinitiv Expands Economic Data Coverage Across Africa

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Building on its commitment to drive positive change through its data and insights, Refinitiv today announced the expansion of its economic data coverage of Africa. The new data set allows investment managers, central bankers, economists, and research teams to use Refinitiv Datasteam analytical data for detailed exploration of economic relationships and investment opportunities among data series covering the African continent.

Securing reliable, detailed, timely, locally sourced content has not been easy for economists who have in the past had to use international sources which often can take many months to update and opportunities to monitor the market can be missed. Because Africa is a diverse continent, economists and strategists need more timely access to country-specific data via national sources to create tailored business, policy, trading and investment strategies to meet specific goals.

Africa continues to develop critical infrastructure, telecommunications, digital technology and access to financial services for its 1.3bn people. The World Bank estimates that over 50% of African inhabitants will be under 25 by 2050. This presents substantial opportunities for investors who can spot important trends and make informed decisions based on robust and timely economic data.

Stuart Brown, Group Head of Enterprise Data Solutions, Refinitiv, said: “Africa’s growing, dynamic and fast evolving economies makes it a focal point for financial markets today and in the coming decades.  As part of LSEG’s commitment to empowering the global markets with accurate and timely data, we are excited about making these unique datasets available via the Refinitiv Data Platform. Our economic data coverage of Africa will provide our customers with deeper and broader inputs for macroeconomic analyses and enable more effective investment strategies and economic research.”

Refinitiv Africa economic data coverage:

  • Africa economics content comprises around 500,000 nationally sourced time series data covering 54 African nations
  • Content is sourced from national statistical offices, central banks and other key national institutions
  • The full breadth of economics categories in Datastream including national accounts, money and finance, prices, surveys, labor market, consumer, industry, government and external sectors
  • International sources including OECD, World Bank, IMF, African Development Bank, Oxford Economics & more provide comparable data & forecasts across the continent

Refinitiv® Datastream® has global macroeconomics coverage to analyze virtually any macro environment, and better understand economic cycles to uncover trends and forecast market conditions. With over 14.2 million economic times series map trends, customers can validate ideas and identify opportunities using Refinitiv Datastream. Access its powerful charting tools, 9,000 pre-built chart templates and chart studies for commonly used valuation, performance, and technical and fundamental analysis.

 Refinitiv continually grows available data – the China expansion in 2019 covered a unique combination of economic and financial indicators. Refinitiv plans to expand Southeast Asia covering Thailand, Vietnam, Philippines and Malaysia with delivery expected in 2021. This ensures that Refinitiv will have much needed emerging market economic content.

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