Interest rate and central bank news dominates the calendar today and tomorrow. The Bank of Canada’s latest interest rate decision and statement is due at 10:00 am EDT with the Governing Council widely expected to announce a 0.75% rate increase, halfway between the 1.00% hike of its last meeting and the 0.50% hike of two meetings ago.
This afternoon at 2:00 pm, the Fed’s Beige Book regional economic report is due which may provide insights into the state of the US economy and potentially impact speculation on how much the Fed may raise interest rates at its September 20-21 meeting and beyond. This report arrives at a particularly significant time as the 10-year and 30-year treasury note yields have been climbing since Fed Chair Powell’s recent Jackson Hole speech and are currently near 3.34% and 3.48% respectively. The 30-year yield has soared to its highest level since 2014, indicating increasingly hawkish expectations among investors.
Rising US treasury note yields have kept a tailwind behind the US Dollar and a headwind in front of pretty much everything else. The three main US index futures contracts are all down about 0.3%, adding to yesterday’s losses of 0.4% to 0.75%. In recent days, a pattern of morning gains erased by intraday declines has emerged, a sign of ongoing distribution.
Energy market action is soft today with WTI crude oil down 0.6% and natural gas down 1.3%. Tomorrow morning the European Central Bank is meeting on interest rates. A 0.50% hike is widely expected but there was some press speculation about a 0.75% hike after the hawkish tone of the Jackson Hole symposium. The big question is how does the central bank manage the impact on the economy and inflation through the political and energy crises which have caused power costs to soar and amplified expectations for a potentially rough winter ahead? The Dax is down 0.6% and the FTSE is down 0.8% ahead of tomorrow’s decision.