A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
BMO economist Jennifer Lee wrote that pressure on the Fed to cut rates is intensifying, while Merrill Lynch economist Carlos Capistran believes that, where the Bank of Canada is concerned, the domestic economy is “too hot to cut.”
Here’s Mr. Capistran,
“BoC preview – too hot to cut: We expect the Bank of Canada (BoC) to remain on hold at 1.75% on 30 October with only small changes to the statement. We expect the BoC to raise its GDP growth forecast for 2019 but to lower it for 2020. The risk is for a dovish tilt. On rates, the US and CAD 10y rates spread appears too tight. On FX, we expect CAD to resume its weakening trend"
I’m a bit surprised that Merrill expects the CAD to fall.
If the Fed cuts and the Bank of Canada stands pat, the two-year bond yield spread (Canadian two-year bond yield minus the U.S. two-year yield) will widen in Canada’s favour. The two-year spread has been the most powerful determinant of the loonie’s value lately, so I would expect the CAD to rally at least in the short term. Maybe I’m missing something.
“@SBarlow_ROB BMO: "The pressure on the Fed to cut rates further… which it will likely do next week… is growing" – (research excerpt) Twitter
“@SBarlow_ROB ML: BoC - too hot to cut’ – (research excerpt) Twitter
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Ritholtz Wealth Management’s Michael Batnick Building a recession-proof portfolio video and accompanying 12 charts represent a true public service to North American investors.
Here are some highlight comments,
“[U.S.] recessions have become less frequent with the passage of time … They’ve also been shorter in duration… Calling a recession is hard. Timing it is harder. Getting out before it hurts your portfolio and getting back in when the coast is clear is impossible… In the GFC, a 60/40 portfolio fell 27% peak to trough. That is about as bad as it’s going to get … Recessions are an unavoidable part of investing like death is an unavoidable part of life. It doesn’t pay to waste too much energy focusing on either”
“12 Charts You Ought to See Before the Next Recession” – Batnick, Irrelevant Investor
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Economists are really bearish, according to a Reuters survey.
Investors can view this as a contrarian signal – bullish – but equity prices are showing optimism not pessimism so the context is unclear,
“'More central banks around the world, led by the Fed and the ECB, are cutting rates. Fiscal stimulus is imminent, too, but yield curves still seem to be signaling recession,' wrote Janet Henry, global chief economist at HSBC, in a note to clients. Growth and inflation forecasts for most major economies appear to be on the wane or at best holding at historically modest rates, according to Reuters polls of over 500 forecasters from around the world taken this month”
“Deeper global slowdown still more likely despite round of rate cuts: Reuters poll” – Reuters
“ What the yield curve tells us about the global economy | Charts that Count” – Financial Times video (paywall)
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The logic behind the White House trade negotiation strategy escapes me,
“U.S. should look at its own problems, China says after Pence speech” – Reuters
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Diversion: “Adam Neumann Is the Most Talented Grifter of Our Time” – The Atlantic
Tweet of the Day:
Scott Barlow