What to watch

There are two clear highlights of the day. The FOMC meeting and the BoC meeting. With 4 and 5 hikes already priced into markets for 2022 the bar to hawkish surprises is rather limited. Equities continue to recover off their lows but the situation in Ukraine still has the potential to move markets. Most participants will have either pre-positioned for the upcoming central bank meetings or have taken risk off the table, however.

• The FOMC will continue its hawkish shift at the January meeting, using the Statement to signal that a rate hike is coming in March. But with a March hike and 4 2022 hikes priced in, hawkish risks are fairly limited, and lack of a clear intention to liftoff at the next meeting in the Statement would be met with a dovish market reaction. The main hawkish risk potential comes from balance sheet communications, starting with a potential end to asset purchases a month earlier than expected. For the full MNI Fed Preview click here.
• The Bank of Canada decision will be released at 15:00GMT. The OIS market is pricing in ~70% chance of a first 25bp hike. Bloomberg has consensus the other way with a steadily falling majority of 15:12 in favour of holding. The MNI Markets team expects the BoC will hike this week. Governor Macklem has previously indicated that price stability is “job one” for the BoC and that “time is getting closer” to remove forward guidance of lift-off in mid-2022. OIS pricing more than five hikes in 2022 could limit potential for a materially hawkish surprise. For the full MNI BoC Preview click here.