Central Bank Watch Overview:
- As 2020 gets started and central bank rate decisions begin to come into focus in the second half of January, it’s clear that the new year won’t mean new monetary policies.
- The Federal Reserve is expected to stay on hold until September; the BOC, until October; and the ECB, through the entire year.
- Retail trader positioning[1]suggests that more gains ahead for the US Dollar[2].
Recession? War? Central Banks Shrug
The end of 2019 brought forth a number of significant developments: the US-China trade war Phase 1 deal; the historic victory by UK Boris Johnson, clearing the way for Brexit; and a sharp escalation in geopolitical tensions between the US and Iran. Yet equity markets are continuing to trudge high, unmoored by the prospect that anything that the Trump administration is doing is much more than ‘theater.’
As 2020 gets started and central bank rate decisions begin to come into focus in the second half of January, it’s clear that the new year won’t mean new monetary policies. Indeed, G10 central banks appear to be ready to chart the same path that they followed as 2019 ended.
BOC Rate Cut Pricing Remains Depressed
BOC Governor Stephen Poloz started 2020 with a positive assessment on the global economy: “potential downside risks” to the global economy due to the US-china trade war have dissipated. In turn, the view that BOC policymakers are signaling stability on the policy front remains valid. After peaking in November 2019, when rates markets were pricing in a 25-bps rate cut from the BOC as early as April 2020, interest rate cut expectations have been steadily declining.
Bank of Canada Rate Expectations (JANUARY 10, 2020) (Table 1)
According to overnight index swaps, the chance of a BOC
