OPES Family Advisory

Good Morning,   Stocks have pulled back mildly as traders digest strong U.S. retail sales data and await the Federal Reserve’s next interest rate decision and economic forecasts. The S&P 500, S&P/TSX, and the Nasdaq 100 each fell roughly 0.36% (in base currencies). The yield on 10-year Treasuries was little changed at 4.40%. U.S. retail sales increased at a firm pace in November, underscoring consumer resilience during the crucial holiday shopping season. While the economy is resilient, the prospect of inflationary import tariffs threatened by the incoming administration of Donald Trump may give Fed officials pause about the pace of further moves. More strong economic data like retail sales could also bolster the case for the Fed to pause rate decreases in January.   In Canada, inflation dropped below the central bank’s target for the second time in three months. The data is expected to give Bank of Canada officials confidence that their rapid rate cuts didn’t derail their efforts to keep price gains at the 2% target. The consumer price index rose 1.9% on a yearly basis in November, down from a 2% increase a month earlier, Statistics Canada said this morning. That’s slower than the median estimate of 2% from surveyed economists. On a monthly basis, the index was unchanged, following a 0.4% jump in October and versus expectations for a 0.1% gain.   The inflation report landed a day after Canadian finance minister Chrystia Freeland abruptly resigned, accusing Prime Minister Justin Trudeau’s government of fiscal imprudence. The loonie largely held its losses after the data release, trading at C$1.4277 per U.S. dollar as of 8:47 a.m. in Ottawa. Canadian government two-year bond yields rose about three basis points to 3.043%.   Last week, Bank of Canada Governor Tiff Macklem and his officials reduced their policy rate by half a percentage point for the second time, making them one of the most forceful rate-cutters among advanced economies. With the 175 basis-point cut over roughly six months, they have effectively brought rates to a level they believe is no longer clearly restrictive for growth.   Oil has moved lower for a second day as weakness in global equity markets compounded concerns about soft consumption in China, the biggest crude importer. Brent traded near $73 a barrel, following a 0.8% drop in the previous session. Related equities retreated in most regions, adding to the pressure on crude from weak Chinese refining and retail sales numbers on Monday.   Crude has fallen by about 15% in the latter half of 2024 on concerns over the outlook for next year. Still, since the middle of October futures have been trading in a narrow range, pushing oil’s 30-day historical volatility to the lowest since August. Pessimism over China dragged prices away from the upper end of the price band.   Sources: Bloomberg, BNN Bloomberg, Statistics Canada, Reuters, The Globe & Mail

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Good Morning,   U.S. stock futures are pointing to a softer open for markets, with contracts on the S&P 500 down 0.3% while those on the Nasdaq 100 slipped 0.6%. Both indexes had made strong gains yesterday, when an in-line U.S. inflation print cemented swap markets’ expectations of a quarter-point rate cut at the Fed’s December meeting. Signs of still-elevated inflation pressures and the prospect of a Fed rate pause in early-2025 are keeping investors on edge. That’s pushed Treasury 10-year yields to two-week highs, up three basis points on the day. In the E.U., the European Central Bank met expectations for a quarter-point interest-rate cut, setting the stage for a similar move by the Federal Reserve next week. The Bank of Canada also announced their jumbo-sized rate cut yesterday. Among premarket stock movers, software firm Adobe is down more than 10% after a weaker-than-expected full-year forecast, while Uber was lifted by upbeat management comments at an industry conference. The European Central Bank lowered interest rates for a third consecutive meeting, signaling more reductions next year as inflation nears 2% and the economy shows signs of straining. The deposit rate was cut by a quarter-point to 3% — as predicted by all but one analyst in a Bloomberg survey. That brings total easing since June to 100 basis points. Indicating its shifting stance, the ECB’s statement dropped wording saying policy will remain “sufficiently restrictive” for as long as necessary. Officials are certainly worried about the economic trajectory, with some fretting that persistent sluggishness could drag inflation below target. They’re also grappling with governments falling apart in both Germany and France while trying to gauge how Donald Trump’s economic agenda will impact not just Europe, but also central banks globally.   ECB President Christine Lagarde is not the only central-bank chief overseeing rate decreases. Earlier today, the Swiss National Bank followed Wednesday’s decision by the Bank of Canada to cut by 50 basis points. The Federal Reserve, meanwhile, will probably do likewise next week after data Wednesday showed U.S. inflation for November in line with expectations. For Canada, most economists saw the consecutive back-to-back half-percentage point cuts as a faster way to get where the bank knew they wanted to be, the neutral range — a theoretical level of interest rates that neither stimulates nor restricts economic growth. The central bank estimates that range to be between 2.25% and 3.25%. Sources: Bloomberg, Canada Life Investment Management Ltd., Royal Bank of Canada, The Bank of Canada, The Federal Reserve, The European Central Bank, Trading Economics, Reuters

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Good afternoon, The Bank of Canada has cut interest rates by half a percentage point for a second consecutive meeting, bringing borrowing costs to more neutral levels and better positioning the economy to overcome any challenges ahead. Markets and most economists expected policymakers led by Governor Tiff Macklem to cut the benchmark overnight rate by 50 basis points this morning. That brought the policy rate to 3.25%, the top end of the range of the central bank’s estimate for the “neutral rate” — a theoretical level where borrowing costs neither stimulate nor restrict the economy.   With inflation hovering near the 2% target, the Bank of Canada has said it’s now looking for economic growth to pick up in order to achieve a soft landing. In October, the Bank of Canada also cut borrowing costs by half a percentage point to help bolster economic activity. Despite solid household spending driven largely by population growth, the economy grew just 1% in the third quarter, below the bank’s estimates, as investment and inventories dragged. While housing activity has started to rebound and there’s no signs of widespread job losses, there’s plenty of slack in the labor market — the unemployment rate jumped 0.3 percentage points to 6.8% in November, the highest level since the Covid-19 period.   The Bank of Canada’s rate path is now expected to diverge from that of the Federal Reserve, and the year-ahead spread between the expected policy rates is 119 basis points. That’s helped to push the loonie to trade at the lowest levels against the greenback since 2020.   U.S. stocks are resuming their climb, ending a two-day slide, following a reasonable inflation report this morning. U.S. Treasury yields are lower after the data met economists’ estimates and cemented expectations that the Federal Reserve will keep cutting interest rates. The consumer price index rose 0.3% in November for the fourth-straight month, while core CPI — which excludes volatile food and energy costs — rose by the same amount, according to Bureau of Labor Statistics figures. The core number is preferred by economists as a better indicator of inflation. Swaps traders firmed up bets on a quarter-point interest rate cut at the Fed December policy meeting while adding to wagers on more than 80 basis points of easing over the next 12 months.   Sources: Bloomberg, Bureau of Labor Statistics, Statistics Canada, The Bank of Canada, BNN Bloomberg