Milan Cacic
March 10, 2023
Weekly update Weekly commentaryTWO COUNTRIES. TWO DIRECTIONS!
This week the Bank of Canada announced it was holding its rate steady at 4.5%. It’s stated, "global growth continues to slow, and inflation, while still too high, is coming down.”
Down in the US, Federal Reserve chairman Powell's language could not be any more different. He’s stated, "rates will rise more than previously expected and a 50-bps increase in March is firmly on the table.".
The table below shows the expected federal reserve rates for both Canada and the U.S. As you can see, it appears the will be a divergence between our 2 country’s short term interest rates as the U.S. rises and we stay flat. This will create opportunities and complications.
The obvious fallout if these rate predictions happen is a weakening of the Canadian dollar relative to the US. Commodity stocks should also perform better as well. But the most likely scenario is that Canadian bonds rates have likely peaked and the bond market in Canada should perform well for the remainder of the year and may do very well if we have to cut rates here in Canada later on this year. Of note we increased our bond positions again this week in our models.
I've also included a piece from our CIBC Economics Team entitled "The Carrot & the Stick".
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As always, if you have any questions feel free to give us a call at any time.
Have a great weekend.
Milan