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Loonie Dips After Bank Of Canada Emergency Rate-Cut, Launches QE

Loonie Dips After Bank Of Canada Emergency Rate-Cut, Launches QE

The Bank of Canada has just gone full-Fed-tard by slashing rates to just 0.2% and launching a commercial-paper-buying program and has committed to buy C$5bn Canadian Treasuries per week…

Negative rates next?

Full Bank of Canada Statement:

The Bank of Canada today lowered its target for the overnight rate by 50 basis points to ¼ percent. The Bank Rate is correspondingly ½ percent and the deposit rate is ¼ percent. This unscheduled rate decision brings the policy rate to its effective lower bound and is intended to provide support to the Canadian financial system and the economy during the COVID-19 pandemic.

The spread of COVID-19 is having serious consequences for Canadians and for the economy, as is the abrupt decline in world oil prices. The pandemic-driven contraction has prompted decisive fiscal policy action in Canada to support individuals and businesses and to minimize any permanent damage to the structure of the economy.

The Bank is playing an important complementary role in this effort. Its interest rate setting cushions the impact of the shocks by easing the cost of borrowing. Its efforts to maintain the functioning of the financial system are helping keep credit available to people and companies. The intent of our decision today is to support the financial system in its central role of providing credit in the economy, and to lay the foundation for the economy’s return to normalcy.

The Bank’s efforts have been primarily focused on ensuring the availability of credit by providing liquidity to help markets continue to function.  To promote credit availability, the Bank has expanded its various term repo facilities. To preserve market function, the Bank is conducting Government of Canada bond buybacks and switches, purchases of Canada Mortgage Bonds and banker’s acceptances, and purchases of provincial money market instruments. All these additional measures have been detailed on the Bank’s website and will be extended or augmented as needed.

Today, the Bank is launching two new programs.

Loonie Spikes After Canadian Core Inflation Soars To 10-Year Highs

Loonie Spikes After Canadian Core Inflation Soars To 10-Year Highs

Canadian inflation rose faster than expected in May across all eight major components, spiking the Loonie as it supports the BoC’s view that ‘the North’ is emerging from its growth slowdown (and Poloz argument that rates will need to go higher).

The headline consumer price index jumped 2.4% from a year earlier, compared with 2% in April and versus a median economist forecast of 2.1%, Statistics Canada said Wednesday from Ottawa. It was the highest annual rate since October, boosted by increases in food and durable goods prices.

Core inflation, closely watched by policy makers, surged, with the average of the three key measures rising to 2.07%, the highest since February 2012.

The largest upside contributor to CPI on an annual basis was shelter costs, which rose 2.7%. Food and transportation were also major drivers.

And the Trimmed Mean inflation print jumped 2.3% YoY – the highest since March 2009

Spiking the Loonie…

Presumably, BoC does not believe this spike is “transitory”.

Loonie Tumbles After Canadian Retail Sales Crumble

Loonie Tumbles After Canadian Retail Sales Crumble

Amid the absence of US macro data due to the shutdown, it seems Canada (and China) are making up for it – by crushing the goldilocks dream.

Canada retail sales fell 0.9% to C$50.4B in November, according to Statistics Canada (which did not need to ask the US for the data this time). This was well below the expected decline of 0.6% and Retail sales from August to October were all revised downwards.

Sales fell in 6 of 11 subsectors, representing 75% of total retail trade

  • Largest upside contributor on month was the general merchandise category, 0.20 percentage points
  • Largest downside contributor on month was the gasoline stations category, -0.53 percentage points

And the reaction was immediate weakness in the Loonie…

On the bright side, Cannabis sales total C$54 million in November.

Loonie Slumps As Bank Of Canada Folds On Economic Enthusiasm

Amid near-record-low Canadian crude prices and a housing crisis, The Bank of Canada appears to have finally given up its narrative that ‘everything is awesome’.

The BoC walked back much of its enthusiasm about the nation’s outlook in a decision that kept interest rates unchanged, spinning bad news as good by saying that the economy may have “additional room for non-inflationary growth.” Of course, if the economy was growing faster, the BOC would simply say that the economy is growing… well, faster or “near potential.”

Instead, holding rates unchanged at 1.75%, the BOC cited almost everything that has gone wrong:

  • moderating global growth,
  • a “materially weaker” outlook for the oil sector,
  • a faster-than-expected deceleration of inflation,
  • a drop in business investment and downward historical revisions to output

Following the latest central bank dovish relent, the USDCAD jumped 0.8% to ~1.3374 after touching highest (i.e. the CAD dropping the most) in more than five months on the cautious language, a dovish outlook that could change expectations for 2019 BOC rate hikes.

Even with the dovish undertones, the statement reiterated that rates will need to rise to “neutral range” – which like the Fed it has no idea what it is – within its discussion of recent downside risks, to wit:

“Governing Council continues to judge that the policy interest rate will need to rise into a neutral range to achieve the inflation target.”

Still, the generally less-confident tone is an acknowledgement of developments over the past few weeks that have cast doubt on the strength of the nation’s expansion and prompted investors to scale back the expected pace of future rate increases.

The final nail in the hawkish case coffin was the key shift in tone (red rectangle below) which notes that while the Canadian economy growing in line with expectations, “data suggest less momentum going into the fourth quarter.”

…click on the above link to read the rest of the article…

Loonie Tumbles To 6-Week Lows After Inflation, Retail Sales Slump

The loonie has tumbled to six-week lows (above 1.31/USD) following dismal prints for retail sales and inflation this morning.

Against expectations of a 0.1% rise MoM, Canadian core retail sales slumped 0.4% MoM in August. This is the first drop in retail sales since 2017…

Worse still was consumer price inflation plunged in September, dropping 0.4% MoM, deflating for the second month in a row…

We suspect this is not helped by the collapse in Western Canada Select prices…

And the biggest reaction so far is in the Loonie…

But, on the bright side, weed is legal now, eh?!

Loonie Slides As Canadian Officials Reportedly Doubt NAFTA Deal Will Get Done

Despite outwardly optimistic appearances from Canada’s Freeland, talks between Canadian and U.S. trade negotiators reportedly turned sour last night and Trudeau government officials are now expressing concern that a final NAFTA deal will not be concluded on Friday.

“That was a long, intensive conversation with Ambassador Lighthizer and his team. The atmosphere remains constructive. …We are making progress,” Ms. Freeland said after a session that ended at 8:30 p.m.

She returned at 10:15 p.m. for another meeting that lasted just five minutes. Ms. Freeland told reporters that she had “a couple things to say” to Mr. Lighthizer and she would meet him again Friday.

According to The Globe reports, USTR Lighthizer has refused to budge on eliminating Chapter 19 – which allows Ottawa to challenge punitive American tariffs on imports before binational panels – and refusing to keep current cultural protection provisions in a redrafted North America free-trade agreement.

Ms. Freeland, who said on Thursday a deal is possible, had offered the Americans concessions on increased U.S. dairy exports to Canada U.S. and on intellectual property, but Mr. Lighthizer was unwilling to offer any concessions of his own on the two key Canadian demands.

As The Globe reports so ominously:

There is now deep concern within the Canadian negotiating team that the talks which continue this morning will end in failure. 

However, on the back of The Globe’s ‘sources’, the loonie is slipping lower – erasing all the early week hope-filled gains…

1.3050 seems like a line in the sand for the Loonie for now, any further negative headlines and a break of that level will push the canadian dollar notably lower.

Finally, we note that Citi points out that sources have been saying all sorts of things, with some suggesting there’s been enough progress.

Bank of Canada Hikes Rates By 25bps, Loonie Rises On Hawkish Take

The Bank of Canada raised the overnight rate by 25bps to 1.5%, in line with consensus estimates.

In justifying the move, the Bank said it expects the global economy to grow by about 3.75% in 2018 and 3.5% in 2019, adding that the US economy is proving stronger than expected, reinforcing market expectations of higher policy rates and pushing up the US dollar. It warned that this is “contributing to financial stresses in some emerging market economies” suggesting that Canada was dragged into the rate hikes rather than welcoming it.

In other words, the BOC hopes that demand from the U.S. will trump the drag on trade from tariffs the two neighbors, as well as the uncertainty over the future of Nafta.

It also noted that while oil prices have risen, the Canadian dollar is lower, reflecting broad-based US dollar strength and concerns about trade actions, noting that “the possibility of more trade protectionism is the most important threat to global prospects.”

Perversely, even as the BOC hiked rates, it warned that household spending is “dampened by higher interest rates and tighter mortgage lending guidelines.”

Curiously, despite market concerns, the BOC raised its Q2 GDP forecast to 2.8% from 2.5% previously, with Q3 seen at 1.5%; The bank also raised the potential output growth to 1.8% in 2018, and 1.9% in 2019 and 2020.

Commenting on the ongoing trade war with the US, the BOC estimates US tariffs on steel and aluminium will reduce level of real Canadian exports by 0.6%, with the impact expected to be felt in H2 2018. Meanwhile, Canadian counter measures estimated to reduce real imports by 0.6% starting Q3, while tariffs will temporarily boost inflation in Q3 2019.

…click on the above link to read the rest of the article…

Loonie Tumbles After Ugly Canadian Data: Worst Toronto Retail Sales In 3 Years

The synchronized economic slowdown has hit again, this time striking America’s latest trade war opponent, Canada, which moments ago reported some very ugly inflation and retail sales data.

First, on the inflation front, Canadian CPI rose just 2.2% in May from 2.1% in April, badly missing what Wall Street estimated would be an increase to 2.6% due to higher gasoline prices. According to Statistics Canada, the largest upside contributor to the inflation print was the recreation, education category, 0.27 percentage points, while the largest downside contributor was the household operations category, -0.12 percentage points.

Broken down by the various CPI metrics, the data was as follows:

  • The average of CPI core measures was 1.90% y/y in May from 1.97% a month earlier
  • CPI-common at 1.9% y/y in May from 1.9% in previous month
  • CPI-median at 1.9% y/y in May from 1.9% in previous month
  • CPI-trim at 1.9% y/y in May from 2.1% in previous month

The retail sales data was even worse, with the headline number tumbling -1.2% in April, well below not only the consensus estimate of an unchanged print , but also below the lowest end of the forecast range which was -0.4% to 0.2%. Core retail sales, ex-autos, also missed, falling 0.1% in April, est. +0.5%

Just like in the US, a big contributor to the miss appears to be the rise in e-commerce, with online sales of C$1.33B in April, up 8.8% from a year earlier and representing 2.7% of total retail sales.

Broken down by region, there was weakness all round, however Toronto was an outlier, with retail sales falling most since Jan. 2015. Poor weather weather may have hurt retail sales.

  • Toronto retail sales -2.9% m/m
  • Montreal retail sales -2.60% m/m
  • Vancouver retail sales +0.2% m/m

Following the data, the Canadian loony tumbled by 100 pips, with the USCAD rising from 1.327 to 1.337, before regaining some losses.

Loonie Drops As Bank Of Canada Holds Rates (As Expected)

With Canadian economic data at its most disappointing in 20 months, domestic trade-wars over oil pipelines exploding, and a housing market on the verge of collapse, The Bank of Canada held rates unchanged (as expected), sending a weak signal that sparked Loonie selling

Bank of Canada Holds Benchmark Overnight Rate at 1.25%

2018 has not been a good one for Canada’s economy…

but BOC writes off 1Q growth weakness, saying it will rebound in 2Q.

Slower economic growth in the first quarter primarily reflects weakness in two areas. Housing markets responded to new mortgage guidelines and other policy measures by pulling forward transactions to late 2017. Exports also faltered, partly owing to transportation bottlenecks. Some of the weakness in housing and exports is expected to be unwound as 2018 progresses.

Also says the economy will be slightly above potential over the next 3 years, crediting federal and provincial budget measures.

But the FX market is not buying it…

The central bank played down a faster-than-expected pick-up in inflation as temporary, arguing the shocks of higher gas prices and minimum wages in some provinces will dissipate by 2019.

These releases codify Poloz’s narrative the expansion can be prolonged without fueling inflation.

Key highlights (vis Bloomberg):

  • BOC reiterates that “Governing Council will remain cautious with respect to future policy adjustments” and be “guided by incoming data”
  • BOC: “Higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed”
  • Inflation expected to average 2.3% over 2018, from 2.0% previously; Core measures have edged up to near 2 percent, “consistent with an economy operating with little slack”
  • Wage growth is firming, but Bank “will continue to assess labour market data for signs of remaining slack”
  • Bank of Canada makes upward revision to 2019 growth: GDP expected to grow 2.0% in 2018 and 2.1% in 2019, from 2.2% and 1.6% respectively;
  • Housing will not contribute to growth in 2018 and 2019, exports will not contribute to growth in 2018 (from +0.6pp previously)

…click on the above link to read the rest of the article…

Loonie Spikes As Canadian Consumer Prices Surge

Oh, Canada… growth is stagnating, housing bubbles imploding, and now inflation is surging

Canadian Consumer prices surge 2.2% YoY (well above expectations of +1.9% and January’s +1.7% YoY)

Core prices – which exclude more volatile items like energy and are considered a gauge of inflation pressures – inched higher for a fifth month to 2.03 percent, which is the fastest since 2012.

Statistics Canada cited higher prices for gasoline, cars, and mortgage interest costs as main contributors to annual inflation. The minimum wage increases in Ontario also seem to have had an impact, with food purchased from restaurants pushing up nationwide prices by 4 percent from a year ago.

Faster-than-expected inflation could add pressure on the Bank of Canada – which has kept the expansion going with low interest rates – to keep hiking borrowing costs to more normal levels.

And the Loonie is surging…

 

Loonie Tumbles As Canadian Retail Sales Crashed In December

But, but, but… it was Christmas!!

Canadian retail sales have come out and they are shockingly low – even after bad weather and higher rates on big ticket items had kept surveys particularly low for December.

The headline print was -0.8% MoM (expectations were for no change)

Worse still, sales ex autos plunged 1.8% MoM (against expectations of a 0.3% gain) – the biggest drop since Jan 2015…

As Citi notes, these numbers, while often volatile, were not expected to be a big mover, but the extent of the miss has triggered some activity in USDCAD, which has jumped up to 1.2736 already and may have more to run.

Loonie is at its weakest vs the dollar since 12/21…

Oh Canada! Part-Time Jobs Crash Most In History

The Canadian job market has never lost more part-time jobs – ever – than in January…

Canada’s unemployment rate rose to 5.9% as total job losses for January dropped the most since 2009, but it was the 137,000 collapse in part-time jobs that stands out.

So what is driving this collapse?

Simple – Minimum Wage Hikes In Ontario.

Ontario raised the minimum wage 21 percent to C$14 ($11.26), making it the highest in Canada.

And as Reuters reports, the steep minimum wage increase that went into effect on Jan. 1 in Ontario, Canada’s most populous province,has had a rocky start as some employers cut workers’ hours and benefits to reduce its impact on the bottom line.

The provincial government, controlled by the Ontario Liberal Party, positioned it as a measure to improve the livelihood of workers in Ontario, home to the nation’s largest city, Toronto, and its capital, Ottawa.

Yet some employers responded by implementing hiring freezes, cutting hours of existing workers, eliminating paid breaks and boosting benefits costs.

Shocker – sending minimum wage costs soaring leads to less demand for low-skill employees?

Will they never learn?

Of course, some see a silver lining as average hourly earnings jumped 3.3% (vs 2.9% previous month) thanks to the min wage hike, the fastest pace since 2015.

But, it appears the minimum wage hike has sent more people ‘out’ of the work force as the participation rate plunges to its lowest since 1999…

As a reminder, The Bank of Canada hiked ‘dovishly’ in January…

The BOC also noted that “while the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target.”

We suspect that hike-trajectory may slow.

The reaction in the Loonie is quite chaotic…

Loonie Tumbles After Dovish Bank of Canada Hikes By 25bps, Warns Of NAFTA Uncertainty

As expected by a broad majority of economists, the Bank of Canada just hiked its overnight rate by 25bps to 1.25%, the first hike by a G-7 central bank in 2018.

In raising the rate, the BoC said that “recent data have been strong, inflation is close to target, and the economy is operating roughly at capacity” however in a dovish twist the BOC added that “as uncertainty about the future of NAFTA is weighing increasingly on the outlook, the Bank has incorporated into its projection additional negative judgement on business investment and trade.

From the bank’s forecasts:

In Canada, real GDP growth is expected to slow to 2.2 per cent in 2018 and 1.6 per cent in 2019, following an estimated 3.0 per cent in 2017. Growth is expected to remain above potential through the first quarter of 2018 and then slow to a rate close to potential for the rest of the projection horizon.

The central bank also sees the following key indicators:

CPI Inflation Y/Y:

  • 2017 Q2:1.3%, last 1.3%
  • 2017 Q3:1.4%, last 1.4%
  • 2017 Q4:1.8%, last 1.4%
  • 2018 Q1:1.7%

Real GDP Y/Y:

  • 2017 Q2:3.6%, last 3.7%
  • 2017 Q3:3.0%, last 3.1%
  • 2017 Q4:3.0%, last 3.1%
  • 2018 Q1:2.7%

However, what appears to have spooked traders is the general dovish context of the statement:

Looking forward, consumption and residential investment are expected to contribute less to growth, given higher interest rates and new mortgage guidelines, while business investment and exports are expected to contribute more. The Bank’s outlook takes into account a small benefit to Canada’s economy from stronger US demand arising from recent tax changes. However, as uncertainty about the future of NAFTA is weighing increasingly on the outlook, the Bank has incorporated into its projection additional negative judgement on business investment and trade.

As a result of the unexpected dovish addition, while the loonie initially kneejerked higher, it has since given up all gains and is now near the lows of the day.

…click on the above link to read the rest of the article…

“Loonie Longs Are Set For A Painful Dose Of Reality”: Trader

“Loonie Longs Are Set For A Painful Dose Of Reality”: Trader

Is all hell about to breaks loose for Loonie longs?

Yesterday, Bank of America released a note titled simply enough “CAD longs at risk”, in which it said that “according to our liquid cross border flow (LCBF) data, hedge funds and real money now appear to be in the process of selling out of extended CAD longs after having been consistent buyers since the summer.” The Bank said that this represents an important directional shift and explained as follows:

As argued last month, risks remain sharply skewed to the upside in USDCAD over the next few months based largely on supportive US vs. Canada fundamentals and CAD position liquidation potential. Based on confirming trends in the LCBF data, we are more comfortable with our position liquidation thesis and continue to expect a retest of 1.33.  Hedge funds began buying CAD after BoC Senior Deputy Governor Carolyn Wilkins delivered an upbeat assessment of Canada’s economic economy on June 12, marking the beginning of a pivotal shift in the BoC’s policy stance that ultimately saw the two emergency rate cuts of 2015 reversed in the July and September meetings. Hedge funds were net buyers of CAD in 13 of the 15 weeks following that speech, amassing a large cumulative position that peaked the week of November 17. In the three weeks since, roughly 40% of hedge fund longs in CAD have been liquidated.

As a result, BofA thinks that the risk is that real money follows the hedge fund lead and initiates the position squaring process, and added that “after unprofitably fading the Wilkins speech in the back half of June, real money began aggressively building long CAD positions from July through September, a period over which 80% of its peak cumulative long CAD position recorded on November 24 was put on.

…click on the above link to read the rest of the article…

Bank of Canada Raises Interest Rates… Again

Bank of Canada Raises Interest Rates… Again

stephen-poloz1-300x225For the second time in less than two months, the Bank of Canada has raised interest rates.

On Wednesday, the central bank raised its overnight lending rate by a quarter per cent to 1 per cent.

The move surprised many who weren’t expecting a rate increase until later this Autumn.

Just like last time, the rationale behind higher rates was centred around the Bank of Canada’s belief that the economy is growing faster than expected.

Bank of Canada Governor Stephen Poloz said, “The level of GDP growth is now higher than the bank expected.”

Of course, this assumes that GDP measures anything.

The Canadian loonie surged after the announcement, climbing to 82 cents U.S.

The decision reinforces the message that easy money and low-interest rates are coming to an end. Of course, the bursting of Canada’s real estate bubble could reverse direction for the bank, using these recent rate gains as leverage to cut rates in order to “stimulate” the deflating economy.

But until then, analysts are expecting more rate hikes since many have confused consumer indebtedness and rising prices as economic strength.

The Bank of Canada won’t confirm these predictions since, according to the central bank’s statement, price controls on interest rates are, “predetermined and will be guided by incoming economic data and financial market developments.”

Of course, the Bank of Canada isn’t clueless when it comes to higher rates and indebted Canadian households. In the rate hike statement, the bank promised that “close attention will be paid to the sensitivity of the economy to higher interest rates,” given “elevated household indebtedness.”

The bank’s next scheduled rate-setting is Oct. 25.

All in all, today’s announcement puts interest rates back to where they were in January 2015, before Poloz made two surprising “emergency rate cuts” to deal with falling oil prices.

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