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MNI: ITALY NOV SRVCS PMI 49.2 (FCAST 50.8); OCT 52.4

MNI: SPAIN NOV SRVCS PMI 53.1 (FCAST 53.3); OCT 54.9

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POV: QE TAPER EVEN ODDS

BOC

Consensus: The Bank of Canada will keep its target rate on hold at 0.25% Wednesday, while there is an even chance weekly bond purchases are reduced by CAD1B to CAD3B/week.

  • Despite the better than expected economic data since the beginning of the year (diminishing labor market slack, improving business sentiment and surge in housing metrics), the Bank of Canada will likely maintain status quo in rates, guidance and stimulus in light of the latest surge in Covid-19 cases domestic and globally. Better to wait for the next policy meeting on June 9 before tweaking policy.
Dovish risk: Unlikely in light of improved economic data, there is a slim chance Bank may view the surge in Covid-19 cases more seriously, opting to push weekly bond buying back to CAD5B, or perhaps introduce a micro-cut of 5-10bp to the rate as had been suggested going into the March meeting.
Hawkish risk: Again unlikely, the bank could taper QE faster than gradual pace mentioned by Bank Deputy Governor Toni Gravelle on March 23: "As new information on the strength of the recovery arrives, Governing Council will continue discussions about gradually adjusting the pace of our QE-related purchases."
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