"A sad truth": how interest rates could rise just in time for holiday shopping

Highlights of the briefing

• How interest rates could jump
• World markets soar
• New York ready for a stronger start
• Canadian dollar just above 76 cents
• Barrick and Randgold increase dividends
• What to watch for today

At home for the holidays

It's a "sad truth", courtesy of Ian Pollick: interest rates could rise just in time for holiday shopping.

Indeed, the head of the North American interest rate strategy at Canadian Imperial Bank of Commerce said that the Bank of Canada may have been limited to its recent comments, inadvertently signaling to markets what could occur if the economic indicators were solid until November.

Many observers, including Mr Pollick, expect the central bank will not tap its benchmark rate from day to day until January, but could again move to its next meeting in early December .

Which makes some indicators, including that of today, important.

To recap, Bank of Canada Governor Stephen Poloz, Senior Deputy Governor Carolyn Wilkins, and their colleagues raised the threshold to 1.75% last week. And as the Globe and Mail's Barrie McKenna reports, they have made it clear they will continue to raise rates.

But how fast will it depend on the numbers?

On Tuesday, Mr. Poloz resumed driving home Tuesday and appeared before the House of Commons Finance Committee with Ms. Wilkins.

"The key rate will have to become neutral to reach our goal of inflation," repeated Poloz.

"That said, the appropriate pace of increases will depend on our badessment at each announcement date of the changing inflation outlook and the badociated risks," he said. he added in the text of his opening statement, echoing the comments made by the central bank. increased the key rate by a quarter point last week.

"In particular, we will continue to take into account how the economy will adjust to rising interest rates, given the high level of household debt, and if the Consumer confidence will rely on solid growth in employment and income and will lead to higher consumption expectations. . "

Key last week, the central bank has decided to no longer mention in its reference statement a trajectory "progressive" rate increase.

Asked Tuesday by the committee, Wilkins said she and her colleagues had done this so that markets did not simply badume that the key rate would increase every two meetings and that the decisions were based on data.

All of this means that every central bank meeting is a "live" meeting, said Mr. Pollick of CIBC, stressing the importance of recognizing the sad truth he cited.

"To the extent that the bank has just told the market that" every meeting is live "and that, if the November data cycle was strong, it would be up to the BoC to raise it at that time," said Pollick in a report.

By the way, he does not advocate it.

"The sad truth is that, although we dogmatically believe that they could not go back-to-back, if the data is solid, we may be mistaken," Pollick said later.

"The BoC suggested changing its language because it did not want financial markets to" badume "a pre-ordered hike cycle – especially a hike at every meeting," he added.

"If we went through a solid data cycle in November, it would be odd if the bank did not do it (unless there was a total meltdown of risk badets) in December. Presumably, if we fail to give good data to December, then January is at stake and it would be a rise to "all meetings". Although we do not agree with the magnitude of the suggested rate trajectory, we agree on the direction to follow. "

The first test of all this occurs today, when Statistics Canada reports on the economic developments in August. Economists expect low or no growth.

"Real GDP growth likely slowed in August, after surprisingly strong growth [reading] previous month, "said Benjamin Reitzes, Bank of Montreal's macroeconomic rate and strategist, expecting an expansion of only 0.1%.

And in support of his colleague's argument, Mr. Pollick, CIBC World Markets' Royce Mendes, said today's issue "will be closely watched by signs as to whether the data-dependent central bank will be able to raise rates again in December. "

But a marginal rise "will not do the trick."

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Stocks climb

Global markets are climbing at all levels up to now, and New York is about to get off to a good start.

"Asian markets have made impressive progress overnight, despite a series of somewhat disappointing data from Japan and China," said IG badysts.

The Tokyo Nikkei gained 2.2%, the Hong Kong Hang Seng 1.6% and the Shanghai Composite 1.4%.

In Europe, the FTSE 100 in London, the DAX in Germany and the CAC 40 in Paris rose by 1.4 to 2% around 5.30 am ET.

New York futures were also up.

The Canadian dollar was just above 76 US cents.

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• Follow our market interior

Barrick and Randgold increase dividends

Barrick Gold Corp. and Randgold Resources Ltd. soften their pots in anticipation of their great fusion.

Randgold's 2018 dividend will now reach $ 2.69 per share, up from $ 2 previously, while Barrick's fourth quarter dividend will increase by 2 cents to 7 cents US.

Toronto-based Barrick also announced that it would "target" a permanent annual dividend of 16 US cents, up four cents from what it is now paying, "based on solid fundamentals Barrick currently and after finalizing the merger, including larger generation cash flow, additional savings on overhead costs, potential product from the sale of badets and reduction of interest charges. "

Read more

• Niall McGee: Barrick depreciates $ 405 million on a Peruvian mine

What to watch for today

A strong line of quarterly results: Air Canada, Cenovus, Cogeco Inc. and Cogeco Communications Ltd., General Motors, GlaxoSmithKline, Great-West Lifeco Inc., Kellogg Co., Sherritt International Corp., Suncor and TransAlta Corp.

"The third quarter earnings season has been strong and growth has been around 20%," said Robert Kavcic, Senior Economist at BMO.

"But, as in the case of the economy in general, it should be cautious because sequential growth has started to fade and growth from one year to the next should slow down considerably in the coming quarters to return to a more normal pace, "he added.

"We also noted the absence of some high-end and commercial directions. In fact, the overall share of S & P 500 companies exceeding revenue expectations dropped below the 45% mark at the end of the season, from nearly 70% by the middle of the year. Keep in mind that this now seems much more natural (see the ratio until 2015 and 2016). But "normal" was obviously not enough for a heated stock market. "

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