Oil continues to decline. The Bank of Canada has chosen a more aggressive rate hike

December 8, 2022

National Economic Council Director Brian Deese said yesterday that the US economy is resilient despite the Federal Reserve raising interest rates. Brian Deese also added that low credit card delinquencies and mortgage problems point to resilient household balance sheets, while the labor market and savings rates also point to more robust growth. Moreover, he pointed to slowing inflation as a positive sign of healthier economic growth. But at the moment, the Fed is expected to raise rates again at its meeting next week, and that is putting downward pressure on quotes. As the stock market closed Wednesday, the Dow Jones Index (US30) closed at opening levels, while the S&P 500 Index (US500) was down by 0.19%. Technology Index NASDAQ (US100) fell by 0.51% yesterday. All three indices closed negative.

The 2/10 Treasury bond yield curve flipped by 82 basis points, the biggest reversal in 40 years, signaling growing fears of a potential recession.

The Bank of Canada has chosen a more aggressive 50 bps rate hike, though analysts had expected a 25 bps increase. The Bank of Canada’s overnight rate now stands at 4.25%, the highest since 2008. The Bank of Canada and the Reserve Bank of New Zealand currently hold the highest rates of the major economies. The statement indicates that inflation growth has been more robust than expected, while Canada’s labor market remains “tight” and the economy continues to operate in excess demand. The Bank of Canada plans a final 25 basis point hike early next year and will take a long pause after that. The next meeting is scheduled for January 25.

Equity markets in Europe were mostly down yesterday. German DAX (DE30) decreased by 0.57%, French CAC 40 (FR40) fell by 0.41%, Spanish IBEX 35 (ES35) was down by 0.50%, British FTSE 100 (UK100) closed on Wednesday with minus 0.43%.

European Central Bank Governing Council spokesman Peter Kazimir expressed support for a third straight 75 basis point interest rate hike next week. While the slowdown to 10% in November is welcome, it is too early to declare that the worst of the unprecedented price spike is over, Kazimir said in an interview. According to him, any recession in the eurozone is likely to be short, and inflation will remain above the target level even in 2025. In addition to interest rates, officials will also discuss how to begin writing off about 5 trillion euros ($5.3 trillion) worth of bonds bought in recent years as part of stimulus measures, a process known as quantitative tightening (QT).

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The UK and US are forming a new energy partnership aimed at improving energy security and lowering prices. The new partnership will stimulate work to reduce global dependence on energy exports from Russia, stabilize energy markets, and increase cooperation on energy efficiency, nuclear power, and renewable energy. As part of this, the US will export at least 9 to 10 billion cubic meters of LNG over the next year through British terminals, more than double the level exported in 2021.

China seems to have loosened its zero COVID policy considerably, but US crude reserves showed a huge increase in petroleum products, which outweighs the country’s weekly crude consumption. Crude oil inventories were down by 5.187 million barrels, compared to expectations of a 3.305 million barrel decline. That sent crude oil prices down for the fourth straight day, near a yearly low. January WTI crude oil fell by 3% to $72 a barrel. Brent crude oil fell by 2.8% to $77.11/bbl in London trading.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.72%, Hong Kong’s Hang Seng (HK50) was 3.22% lower, and Australia’s S&P/ASX 200 (AU200) was 0.85% lower.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) gained 0.24%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.40%, and Australia’s S&P/ASX 200 (AU200) fell by 0.47%.

China on Wednesday announced its biggest easing of COVID restrictions, lifting several travel restrictions and testing mandates. The move sparked some gains in Asian markets in the previous session. But with China still struggling with a record-high daily increase in COVID-19 cases, investors remain uncertain as to when Beijing will announce a full opening.

Japan’s economy shrank at an annualized rate of 0.8% in real terms in the last quarter, down from 1.2% last quarter. Inflation-adjusted real gross domestic product shrank by 0.2% on a quarterly basis. The country recorded an unexpected current account deficit in the third quarter on the back of lower exports and more expensive imports.

S&P 500 (F) (US500) 3,933.78 −7.48 (−0.19%)

Dow Jones (US30) 33,596.87 +0.53 (+0.02%)

DAX (DE40) 14,261.19 −82.00 (−0.57%)

FTSE 100 (UK100) 7,489.19 −32.20 (−0.43%)

USD Index 105.15 -0.43 (-0.41%)

Important events for today:

– Japan GDP (q/q) at 01:50 (GMT+3);
– Eurozone ECB President Lagarde Speaks at 14:00 (GMT+3);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
– US Natural Gas Storage (w/w) at 17:30 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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Oil continues to decline. The Bank of Canada has chosen a more aggressive rate hike