Market Quote: Bank of Canada Cuts Again, Fed to Follow Suit?
Author: The editor's desk
September 5, 2024
A mid-week analysis of what’s happening in global financial markets from the perspective of AGF’s investment management team.
Back to School
The Bank of Canada (BoC) lowered their policy rate to 4.25% from 4.50% as expected on Wednesday. The central bank’s assessment of the Canadian economy remained largely unchanged from previous policy communications: more rate cuts are likely to be required, but continued progress to lower inflation is a pre-requisite. There were no signs of renewed urgency to lower rates faster, so this has helped to keep the Canadian dollar steady.
Meanwhile, the U.S. showed continued weakening of the job market, with job openings falling to the lowest since the start of 2021. This data release suffers from a small sample size and low response rate, so we will look to Friday’s employment data as a better report card ahead of the U.S. Federal Reserve’s (Fed) meeting in two weeks. If recent trends are confirmed, many investors will continue to expect policy easing from the Fed, helping to support rates markets and keep the U.S. dollar from strengthening.
Laboured Start
The Bank of Canada (BoC) cut interest rates for the third consecutive meeting and signaled its intent to further reduce rates if inflation continues to stay in line with their projections. This follows a path of global monetary policy easing, which should culminate in the U.S. Federal Reserve (Fed) finally reducing interest rates for the first time since 2020 at their next scheduled meeting on September 18.
Reduced borrowing costs may be good news for investors amid renewed global equity market volatility so far this September. The day after Labour Day marked a significant drawdown in North American stock indexes as Technology, Resources and other cyclical stocks started the month off sharply lower after a strong second half to August, which brought U.S. equities back to near all-time highs.
Volatility was led by a sharp decline in oil prices, down more than 5% to their lowest level since early January, on renewed fears of oversupply and the potential for weaker demand if global economies soften into the U.S. election. In response to the oil price decline, news broke today that OPEC+ is considering delaying the planned increases in oil supply which was supposed to take effect in October and return 180,000 barrels to market. Even with this news, oil prices were unable to sustain early morning gains on Wednesday and turned negative again in the afternoon.
The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.
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AGF brings a disciplined approach, focused on incorporating sound, responsible and sustainable corporate practices. The firm’s collective investment expertise, driven by its fundamental, quantitative and private investing capabilities, extends globally to a wide range of clients, from financial advisors and their clients to high-net worth and institutional investors including pension plans, corporate plans, sovereign wealth funds, endowments and foundations.
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