XM Group | Oct 22, 2021 08:10AM ET
BoC - Prepare for liftoff
The Canadian economy is absolutely roaring. Growth is coming back online, inflation is scorching hot, businesses are feeling optimistic, the housing market is on fire, and oil prices keep rising. Best of all, the recovery in the jobs market has been spectacular, with employment already back to pre-crisis levels. This suggests wage growth could fire up soon to keep inflation dynamics rolling.
As for the pound, the outlook doesn’t seem so bright anymore. The BoE will raise rates soon in a slowing economy, to fight rising inflation expectations. That risks choking the recovery and may ultimately be a policy error. Indeed, market pricing is already super-aggressive. The first rate hike is priced for December this year, with another three to follow next year. There’s a lot of scope for disappointment here, as the UK economy is not really firing on all cylinders.
Finally in Australia, inflation stats for Q3 are due on Wednesday. Markets are playing ‘chicken’ with the RBA, pricing in the first rate increase for August while the central bank itself insists that won’t happen before 2024. Hence, the RBA also seems priced too aggressively, especially with China battling an economic slowdown and iron ore prices struggling.
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