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EURUSD TECHS

Extends This Week’s Decline

US 10YR FUTURE TECHS

(H2)‌‌ Downtrend Intact

US EURODLR OPTIONS

Late Put Trade

US TSYS

Breakevens Slide After 10Y TIPS Auction Tails

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  • JPM now expect the Bank of Canada to hike 25bps to 0.5% at the Jan 26 meeting.
  • This leaves a total of five rate hikes this year, “at every MPR meeting when the Bank revises its outlook and one in June 2022”, with the policy rate at 1.5% by the end of 2022.
  • They also expect “the Bank will begin some modest run off of the balance sheet in 2H22” although a more aggressive move of selling balance sheet assets is “unlikely in 2022”.
  • The drivers of the rate call are the Bank leaning “into concerns that the output gap is closing more rapidly than expected and hike before our prior April 2022 forecast and before current forward guidance suggests”.
  • A key factor is the labour market tightening rapidly with employment “upwards of 250,000 above its pre-pandemic level” and the “unemployment rate has rapidly declined to below our estimate of NAIRU”.