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CANADA: Tariff Talk Dominates BoC Speech and Wholesale Sales

CANADA
CanadaBulletMarketsFixed Income BulletsForeign Exchange BulletsNorth America
  • Little reaction in CAD markets to BoC Dep Gov Mendes broadly echoing prior BoC commentary or another reasonable advance estimate for October activity.
  • BoC-dated OIS shows 33bp of cuts for Dec 11 vs 30-31bp recently.
  • Can-US yield differentials sit 4.5-6bps lower on the day, with largest declines in the 5Y. The 2Y is at -104.5bps having recently peaked at -95bps on Friday.
  • USDCAD at 1.4110 holds off earlier multi-year highs of 1.4178 after Trudeau is reported to have directly reached out to Trump on the latter’s tariffs proposals.
  • Mendes: "If the economy evolves broadly in line with our forecast, then it’s reasonable to expect further cuts to our policy rate. That said, the timing and pace of further cuts will be guided by incoming information and our assessment of its implications for the inflation outlook".
  • The Q&A touched upon US tariff inflation risks as two-sided but they won’t be added into the BoC’s projection until policies are enacted. If Trump does enact the tariffs on “day one” as proposed with his inauguration Jan 20, it gives the BoC only a short period to update forecasts ahead of the MPR published on Jan 29.
  • Wholesale sales increased 0.5% M/M in the Oct advance, following mfg sales yesterday at 1.3% M/M and Friday’s retail sales at 0.7% M/M. These are positive signs for select areas of the economy ahead of Friday’s GDP release which includes the October advance. 
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  • Little reaction in CAD markets to BoC Dep Gov Mendes broadly echoing prior BoC commentary or another reasonable advance estimate for October activity.
  • BoC-dated OIS shows 33bp of cuts for Dec 11 vs 30-31bp recently.
  • Can-US yield differentials sit 4.5-6bps lower on the day, with largest declines in the 5Y. The 2Y is at -104.5bps having recently peaked at -95bps on Friday.
  • USDCAD at 1.4110 holds off earlier multi-year highs of 1.4178 after Trudeau is reported to have directly reached out to Trump on the latter’s tariffs proposals.
  • Mendes: "If the economy evolves broadly in line with our forecast, then it’s reasonable to expect further cuts to our policy rate. That said, the timing and pace of further cuts will be guided by incoming information and our assessment of its implications for the inflation outlook".
  • The Q&A touched upon US tariff inflation risks as two-sided but they won’t be added into the BoC’s projection until policies are enacted. If Trump does enact the tariffs on “day one” as proposed with his inauguration Jan 20, it gives the BoC only a short period to update forecasts ahead of the MPR published on Jan 29.
  • Wholesale sales increased 0.5% M/M in the Oct advance, following mfg sales yesterday at 1.3% M/M and Friday’s retail sales at 0.7% M/M. These are positive signs for select areas of the economy ahead of Friday’s GDP release which includes the October advance.