Market Pulse - The week in review
Duncan Presant - Mar 15, 2023
Unsurprisingly, the Bank of Canada (BoC) maintained their key target interest rate at 4.5%.
THIS WEEK’S RECAP:
▪ Unsurprisingly, the Bank of Canada (BoC) maintained their key target interest rate at 4.5%. Policy is likely to remain unchanged for some time though they did indicate a willingness to raise rates again if necessary, as higher than expected global growth and inflation are of concern. Domestically, they are calling for an eventual slowdown in productivity, labour, and the overall economy. The decision and its communication were fully in-line with market expectations, so reaction was muted.
▪ During his semi-annual testimony to US lawmakers, Jerome Powell opened the door to a return to 50 bps rate hikes to tackle tight labour and inflation dynamics. The statement triggered a repricing in US interest rate expectations, but all of it was more than unwound later in the week in response to the troubles at Silicon Valley Bank and a relatively friendly employment data.
▪ The employment data released Friday in Canada and the US was market-friendly in aggregate. While the headline job creation was still strong in the US, an uptick in the unemployment rate and lower than expected wage pressures offered support for the disinflation theme. Canadian job creation came out higher-than-expected, although much lower than last month.
▪ The main story of the week in markets was the rapid fall of Silicon Valley Bank, a California-based commercial bank who focuses on the technology and life sciences industries. While it’s too early to assess what is idiosyncratic and what is a broader theme, the combination of equity market drawdowns, higher borrowing rates and an inverted yield curve has created a challenging environment. The bank is now trying to sell itself and is currently dealing with fleeing depositors and clients. We keep a close eye on the situation and its potential ripple effects.
ON DECK FOR NEXT WEEK:
▪ The next big economic event is Tuesday, with US CPI (February) to be released. Expectations are for an increase in the monthly print (+0.4%) and a move lower in the annual number to 5.5%.
▪ On Thursday, the European Central Bank (ECB) is expected to raise their target rate by 50 bps to 3% to combat stubbornly high inflation.
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