Get alerts
  1. About Us
  2. Economics
  3. Economics Publications
  4. Daily Points
Back
Download PDF 269.6 KB

ON DECK FOR THURSDAY, FEBRUARY 19TH

ON DECK FOR THURSDAY, FEBRUARY 19TH

KEY POINTS:

  • Bonds and stocks cheapening on monetary policy doubts, Iran
  • Fed Hikes? Don’t hold your breath
  • Fed Cuts? Don’t hold your breath
  • Aussie jobs add to RBA hike pricing
  • Murmurs of a Canadian Spring election call make no sense…
  • …as assessing Liberal majority prospects will take months
  • Canada, US to update trade figures that could inform Q4 GDP tracking
  • BSP cut with little impact on local markets
  • BI held with a cautious bias

Bonds and equities are both cheapening this morning. By far the biggest rate moves are Down Under after jobs data (see below). The rest of the bond and equity complexes might be a little disturbed by yesterday afternoon’s FOMC minutes and headlines about potential Fed hikes (see below) plus risks around Iran as oil prices move up a buck. Equities are also moving lower across NA futures and European cash. Other than the stuff of salacious gossip, former Prince Andrew’s arrest might put in play court proceedings that reveal a few degrees of separation from the conduct of others in high places.

Fed Hikes? Don’t Hold Your Breath

Yesterday afternoon’s FOMC minutes were a generally bland affair except for one line that has driven hawkish headlines as hawkish sentiment takes over (chart 1). Here it is:

Chart 1: Fed Turning A Bit Hawkish?

“Several participants indicated that they would have supported a two-sided description of the Committee’s future interest rate decisions, reflecting the possibility that upward adjustments to the target range for the federal funds rate could be appropriate if inflation remains at above-target levels.”

First up is a reminder that the minutes are not vote-weighted. I don’t hear any of this year’s voting FOMC members even remotely entertaining serious thoughts about hiking.

Second, ‘several’ is not quorum in the way the Fed uses language to indicate the degree of plurality of opinion.

On the flipside, the Committee is in no rush to deliver more cuts either. ‘Several’ participants indicated openness to further easing “if inflation were to decline in line with their expectations” while “some” participants indicated a preference to hold the policy rate steady for some time to assess incoming data. “A number” of the latter participants said easing “may not be warranted until there was clear indication that the progress of disinflation was firmly back on track.”

I still think the Committee is curiously taking an overly rosy view of the labour market after they said downside risks to employment had moderated in recent months. If the job market continues to disappoint—excluding narrow health sector hiring—then the Committee might swing back toward expressing concern about the job market.

RBA Hike Pricing Edges Up After Jobs Report

Australia’s job market continues to crank out gains (chart 2). January’s 18k increase followed the prior 69k rise. Full-time job creation dominated both times with a gain of 57k in December and then about 51k in January. The A$ is the class leader this morning while Australia’s rates curve was hammered in bear flattener fashion as the 2s yield increased by 7bps. Markets have the RBA holding on March 18th but upped pricing for a hike in May by a few basis points to being almost fully priced. Markets also raised cumulative hike pricing this year about 40bps, thereby leaning toward a half point hike.

Chart 2: Australian Jobs

Can the Talk of a Spring General Election in Canada

The main takeaway from the latest Conservative turncoat’s move to cross the floor to the Liberals is that it changes nothing by way of the math behind attaining majority status that will only be informed by Spring. Only by then will we know whether the Libs squeak out a majority without the need for another costly election.

The Libs now have 169 seats (here). There are three vacancies with by-elections pending to fill Chrystia Freeland’s seat after she resigned, Bill Blair’s seat after he was sent off to the UK, and Tatiana Auguste’s seat in Quebec after a court nulled the election outcome she won by one single vote. The one where the Libs are most vulnerable is the one in Quebec where the BQ can be fully expected to launch an all-out campaign to snag it. That last by-election cannot be held until April 6th at the earliest (here). Blair’s former riding can hold a by-election no earlier than March 23rd while Freeland’s former riding can hold a by-election no earlier than March 2nd.

There are likely to be two more by-elections in ridings that have yet to be vacated but may soon be. Liberal MP Erskine-Smith said earlier this month that he will resign his federal seat as soon as Ontario Premier Ford calls a by-election in the provincial riding of Scarborough Southwest and with sights set on becoming leader of the Ontario Liberal Party. NDP MP Alexandre Boulerice indicated he may vacate his seat and run for Quebec Solidaire in the October provincial election.

Because of the pending by-elections and how they might propel the Liberals to the 172 seats needed for a majority in the House of Commons, it would make no sense whatsoever to call a general election at least until after the by-election for Auguste’s seat.

Further, even if a general election were to be eventually called should the Libs fall short of a majority, it’s not clear how voters would behave in the multiple ridings that elected a Conservative only to see him cross the floor. They used the Conservative brand and Conservative resources and voters thought they were getting a Conservative. Voter retribution cannot be ruled out. Nor should it be.

US, Canadian Trade on Tap

Canada and the US will update trade figures for the month of December this morning (8:30amET). We have little to go by in terms of estimates for either of them. The US normally releases the merchandise portion before the total balance but this time is releasing it simultaneously as data releases continue to catch up from the federal government shutdown.

For Canada, the things to watch will be revisions and how December data informs tracking of trade contributions to growth. We already know that Q3 contributions to GDP growth will likely be revised up in next Friday’s GDP figures after mapping monthly trade tracking onto the GDP account estimates (chart 3) but we don’t know the potential offsets, like whether stronger than initially guessed exports in the absence of Canada-US trade data came at the expense of inventories that may have been overestimated, or production that was underestimated.

Chart 3: Canadian Exports Comparison

The US also updates weekly jobless claims (8:30amET) with continuing claims possibly informing expectations for February’s unemployment rate (chart 4) and pending home sales for January (10amET).

Chart 4: US Continuing Claims & UR

BSP Cut, while BI Held

Bank Indonesia held its policy rate unchanged at 4.75% as widely expected. BI retained an open bias toward further easing but with a cautious eye on the rupiah and recently higher than expected inflation.

Bangko Sentral ng Pilipinas cut its overnight borrowing rate by 25bps to 4.25% as generally expected. The bias was conditional upon further data. The peso depreciated a touch while base rates were little changed.

Rates Table