Bank of Canada will end its rate hike cycle in September meeting: CIBC strategist

Daily roundup of research and analysis from Scott Barlow, market strategist for The Globe and Mail

Morgan Stanley Wealth Management’s chief investment officer, Lisa Shellett, warned clients to be patient in a report titled ‘Bauware Bear Market Rallies’:

“The powerful rallies we have seen since the mid-June bear market trough are often mistaken for the start of a new bull market. In fact, this summer’s rally is exactly the other 95 bear market rallies of the last 23 years. Importantly, other asset markets are not bullish. Bond and money markets are not pricing the “Fed Pivot” range that appears embedded in stocks. Two-year US Treasuries The U.S. yield is still within 20 basis points of its cycle high, while better-than-expected inflation data has driven the 10-year yield up. As a result, rising real interest rates, a relatively higher US dollar and a lower-than-average equity risk premium Equity valuations appear to be peaking against the backdrop of a.. With falling purchasing managers’ index, weak housing data and poor order-to-inventory dynamics, earning potential looks questionable. Earnings forecast for 2023 since June peak Has decreased by only 3% and still brings 8% above this year’s 10% consensus estimate. Indicates growth. While we understand investor impatience, we will wait for evidence of a new bull market to be confirmed before aggressively adding to the risk. Consider being patient and using cash opportunistically.”

“MS Wealth Management CIO” with “Careful Bear Market Rallies” – (Research Excerpt)

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Doug Porter, chief economist at BMO, noted that Canadians remain in debt despite rising rates.

“The latest monthly composite lending data shows some slowdown from the recent peak, but there are still strong trends. For example, growth in system-wide mortgage balances moderated from a 9.6% y/y pace in June that hit a 10.7% high in February. Points to a further decline in home sales and a fall and cooling in home prices. However… the short-term metrics on lending are only slightly below the 12-month trend — the three-month momentum is still operating at the 8.8% annualized rate, or above inflation. It’s a similar story for the broader measure of credit trends, which are still clicking at around 9%. While strong, none of these borrowing measures affected the frenzied momentum seen back in 2007. Remember that overnight rates peaked at 4.5% in that cycle, before the Great Recession caused rates to drop. ,

“BMO:” Canadian Borrowings: Cooling But Not Cold”” – (Research Excerpt)

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CIBC credit strategist Ian Polick thinks the Bank of Canada is ready to halt its rate hike process.

“We suspect a narrative shift is coming, given that we anticipate the bank will end its rate hike cycle at its next meeting in September, raising the overnight rate by 75 basis points to 3.25%. If we are correct, the ‘big’ shoe drop is effective from October, given that the market is expecting an increase of about 50 basis points in Q4. We anticipate that the September statement will lean towards data reliance rather than outright rhetoric, as seen in the July statement that rates will ‘move up’. For this reason, if we are correct that the bank is entering a period of inertia in Q4, it is very likely that market sensitivity will shift away from central bank signaling to data – primarily inflation but to a lesser extent growth. However, even as market preferences change, we believe this will have little impact on the curve flattening footprint. We don’t expect the market to change in the light of a narrative shift: Flatner should continue to be based on the macro theme next year.

Flattner’s mention means that he believes bond investors who sell short-term bonds and buy longer-term bonds will continue to make money on the trade.

CIBC’s Polik: “We suspect a narrative shift is coming, given that we anticipate the bank will end its rate hike cycle at its next meeting in September, raising the overnight rate by 75 bps to 3.25%. It will happen.” – (Research excerpt)

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Diversion: “New Map of Mars Shows Where It Was Once Covered in Water” – Gizmodo

Tweet of the day: “Baltic dry index at new low. Shows how freight markets are softening as demand in China is easing. Graph via Bloomberg.” —

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