The Bank of Canada (BoC) announced a 50 basis points (bps) rate cut today. This brings the target for the overnight rate to 3.75%. The BoC confirmed inflation in advanced economies declined in recent months and is now around (or below) central bank target rates. Consumer price index (CPI) inflation in Canada declined significantly and reached 1.6% in September—well below the target of 2%.

 

CIBC Capital Markets says today’s rate cut by the BoC was expected and a no brainer. The message is there’s more to come if events unfold as expected. Nothing in today’s BoC rate announcement should raise eyebrows in markets because this rate cut was expected and nearly fully priced in already.

 

Leslie Alba, Director, Portfolio Solutions at CIBC Asset Management says “Following the announcement, the Canadian dollar marginally slid relative to the US dollar in light of the wider interest rate differential. In the bond market, short-term Canadian bond yields fell, but the reaction on the longer end of the yield curve was more muted as markets had largely already priced in the 50 bps rate cut. Meanwhile, Canadian equities, as measured by the TSX Index, were negative following market open, however many stocks saw a short rally around the news and recovered the majority of the losses seen earlier this morning.”

 

“Over the last 12 months, the TSX is up around 30%, while Canadian aggregate bond indices are also sporting double digit returns. We believe that investors will continue to benefit from holding a broad mix of stocks and bonds through to the end of 2024 and into 2025. We’re beginning to see markets, sovereign bond markets especially, return to normal. With the Canadian yield curve no longer being inverted, investors are being rewarded for locking up their money with the government over longer time horizons. Stocks, which have performed well through this rate cutting cycle, should continue to be a cornerstone of long-term wealth generation.”

 

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