BOC's Tiff Macklem: Further Rate Cuts Likely if Economy Evolves as Expected

Remarks of Officials

Central Bank

Summary:

On October 23rd, Bank of Canada (BOC) Governor Tiff Macklem held a press conference stating that Canada has returned to a low inflation level, and the central bank's focus is now on maintaining low and stable inflation and ensuring a soft landing. If the economic trajectory aligns with expectations, further rate cuts are anticipated.

Following the Bank of Canada's October interest rate decision, Governor Tiff Macklem held a press conference, and the main points are as follows:

The economy of Canada grew by about 2% in the first half of this year, and we expect growth of 1.75% in the second half. The economy remains in excess supply. GDP growth is forecast to gradually strengthen to around 2% in 2025, supported by lower interest rates.

The labour market is soft. The unemployment rate was 6.5% in September. Job layoffs have remained modest but business hiring has been weak. Simply put, the number of workers has increased faster than the number of jobs.

In the past few months, inflation has come down significantly from 2.7% in June to 1.6% in September. Recent indicators suggest it will be around 2% in October. Price pressures are no longer broad-based. Our surveys also find that business and consumer expectations of inflation have shifted down and are nearing normal. All this suggests we are back to low inflation. Now our focus is to maintain low, stable inflation.

Inflation is expected to remain close to the 2% target over the projection horizon as upward pressure from shelter and other services gradually diminishes and excess supply in the economy is absorbed. The upward and downward forces roughly balanced.

If the economy evolves broadly in line with this forecast, we anticipate cutting our policy rate further to support demand and keep inflation on target. The timing and pace of further interest rate cuts will depend on incoming information and our assessment of its implications for the inflation outlook.

Tiff Macklem's Press Conference

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BOC

Remarks of Officials

Central Bank

On October 23rd, the Bank of Canada lowered its policy rate by 50 basis points to 3.75%. According to its Monetary Policy Report:

The Canadian economy is largely evolving as expected. Relative to the projection in July, the second-quarter growth was somewhat stronger than anticipated, while the third-quarter growth looked softer. Energy exports have been boosted by the opening of the Trans Mountain Expansion pipeline. The pace of business investment and government spending growth has slowed. Overall, the economy continues to be in excess supply.

The labour market remains soft—the unemployment rate was at 6.5% in September. Population growth has continued to expand the labour force while hiring has been modest. This has particularly affected young people and newcomers to Canada. Wage growth remains elevated relative to productivity growth.

Since the report in July, inflation has moderated due to lower energy prices. CPI inflation has declined significantly from 2.7% in June to 1.6% in September. The upward pressure from shelter and other services gradually diminishes, although it remains the biggest contributor to overall inflation. With inflationary pressures no longer broad-based, business and consumer inflation expectations have largely normalized.

Overall, the Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026. As the economy strengthens, excess supply is gradually absorbed. The Bank expects inflation to remain close to the target over the projection horizon, with the upward and downward pressures on inflation roughly balancing out.

With inflation now back around the 2% target, the Governing Council decided to reduce the policy rate by 50 basis points to support economic growth and keep inflation close to the middle of the 1% to 3% range. If the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further.

Bank of Canada Rate Decision

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Daily News

Economic

[Quick Facts]

1. Oil traders rush into the options market.

2. Japan's manufacturing activity declines for the 4th straight month.

3. Nearly 25 million votes already cast as Harris, Trump hit battleground states.

4. BOE's Bailey: UK inflation is cooling faster than expected.

5. Bank of Canada cuts rates by 50 basis points.

6. BOC's Macklem: Inflation pressures ease, further rate cuts expected.

7. Fed's Beige Book shows stable economic activity, easing inflation pressures.

8. U.S. existing home sales hit a 14-year low in September.

[News Details]

Oil traders rush into the options market

To hedge against the risk of potential supply disruptions caused by conflicts in the Middle East leading to price surges, oil traders are holding a record number of options contracts. This week, Brent crude options reached record open interest of more than 4 million contracts, equivalent to 4 billion barrels. Total positions held by traders have jumped over 25% this month. The contracts also bet on a sustained premium in the coming months, suggesting that traders expect long-term supply threats.

The surge in crude oil options trading reflects efforts to hedge risks associated with supply disruptions caused by conflicts in the Middle East where about one-third of the world's oil comes from. Israel has vowed to retaliate for a missile attack launched by Iran earlier this month and has launched ground operations against Hezbollah in Lebanon.

Additionally, uncertainties surround how U.S. elections could affect policies toward OPEC+ members, Russia, and Iran.

Japan's manufacturing activity declines for the 4th straight month

Japan's manufacturing activity declined again in October, marking the fourth consecutive month of contraction due to sluggish demand and reduced orders. The flash manufacturing PMI fell to 49.0 in October from 49.7 in September.

Economist Usamah Bhatti noted that both manufacturing and services new orders shrank, with weak demand reflected in both domestic and overseas markets, where new orders have seen the steepest drop since February 2023. The flash services PMI also dropped to 49.3, the first contraction in four months, marking its lowest level since February 2022. The composite PMI indicates weakened economic conditions and persistent cost pressures, lowering business confidence for the next 12 months to the lowest level since August 2020.

Nearly 25 million votes already cast as Harris, Trump hit battleground states

As U.S. Election Day approaches, Democratic presidential candidate Kamala Harris is set to hold an online rally in Pennsylvania on October 24 to gain voter support. Meanwhile, Republican candidate Donald Trump is campaigning in Georgia.

According to the University of Florida's Elections Project, nearly 25 million voters have already cast early ballots through in-person or mail-in voting. Key battleground states like North Carolina and Georgia reported record-high turnout on the first day of early voting.

Speaking at a religious event in Georgia, Trump said, "Voter turnout in Georgia has reached an all-time high, and in fact, every state is setting new records. We are doing tremendously well and aim to restore our country." With less than two weeks to go until the November 5 election, Harris and Trump remain locked in tight races across seven competitive states, with high early voter turnout.

BOE's Bailey: UK inflation is cooling faster than expected

Bank of England (BOE) Governor Andrew Bailey said inflation in the UK is decreasing faster than officials had anticipated, signaling a potential rate cut next month. Bailey noted that inflation is now lower than he had expected a year ago, indicating a "positive development" regarding price pressures.

"Disinflation is happening I think faster than we expected it to, but we have still genuine question marks about whether there have been some structural changes in the economy," Bailey said. Although the Bank of England hinted at a cautious easing stance in its previous meeting, Bailey's recent remarks suggest the Bank could adopt a more aggressive rate-cutting strategy if favorable inflation trends persist. His comments on Wednesday reinforced expectations of a potential rate cut next month, with a 60% chance of another 25-basis-point cut in December.

Bank of Canada cuts rates by 50 basis points

The Bank of Canada (BOC) announced on Wednesday that it lowered its policy rate by 50 basis points, reducing it from 4.25% to 3.75%, in line with market expectations. This is the central bank's fourth and largest rate cut since early June. With inflation now nearing 2%, the bank stated that its focus has shifted from lowering inflation to maintaining it around the target level. Future rate cuts will depend on forthcoming data. If the economy evolves in line with expectations, further rate reductions may follow.

BOC's Macklem: Inflation pressures ease, further rate cuts expected

Bank of Canada Governor Tiff Macklem said at a press conference Wednesday that inflation has declined faster than expected, with data and surveys indicating Canada has returned to a low-inflation environment. The central bank's current focus is on maintaining low and stable inflation while ensuring a soft landing. If economic trends align with forecasts, additional rate cuts are likely. Future rate cuts will depend on upcoming economic data and the bank's assessment of inflation prospects.

Fed's Beige Book shows stable economic activity, easing inflation pressures

The Federal Reserve's Beige Book on Wednesday reported stable economic activity across most districts since early September. Over half of the districts indicated slight to moderate job growth, while the rest saw little or no change. Most districts noted a decline in manufacturing activity. Although uncertainty remains high, respondents expressed cautious optimism about the long-term outlook. Inflation continued to ease, with most districts reporting only slight or moderate increases in selling prices.

U.S. existing home sales hit a 14-year low in September

The National Association of Realtors reported on Wednesday that the annualized rate of existing home sales in the U.S. fell to 3.84 million units in September, below the forecast of 3.88 million and down from 3.86 million in August. The median home price increased by 3% year-over-year to $404,500.

While mortgage rates hit a two-year low in September, recent employment and inflation data have reinforced expectations of a gradual approach to rate cuts by the Fed. Mortgage rates have risen since September lows, and many buyers and sellers are waiting for financing costs to decline.

[Today's Focus]

UTC+8 15:15 France SPGI Manufacturing PMI Prelim (Oct)

UTC+8 15:30 Germany SPGI Manufacturing PMI Prelim (Oct)

UTC+8 16:00 Eurozone SPGI Manufacturing PMI Prelim (Oct)

UTC+8 16:30 UK SPGI Services PMI Prelim (Oct)

UTC+8 21:00 Bank of England MPC Member Mann Speaks

UTC+8 21:00 ECB Governing Council Member Kazaks Speaks

UTC+8 21:45 U.S. SPGI Manufacturing PMI Prelim (Oct)

UTC+8 01:00 Next Day: ECB Chief Economist Lane Speaks

To stay updated on all economic events of today, please check out our Economic calendar

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SAXO

Economic

Global Market Quick Take: Asia – October 24, 2024_1

Macro:

The Bank of Canada cut rates by 50bps to 3.75% with Governor Tiff Macklem emphasized that core inflation is easing as expected. He noted that further rate cuts are likely if the economy evolves as expected, with a focus on inflation and growth data moving forward. He also mentioned that the BOC is focused on ensuring a smooth economic transition, or "sticking the landing", as they navigate the post-inflationary environment. However, no immediate commitment to more aggressive rate cuts was made, with future decisions being data-dependent.

US Fed’s Beige Book reinforced expectations of further rate cuts. Several Fed officials, including Chair Powell, referenced the Beige Book as a key reason for the 50 bps rate cut in September. The report highlighted downbeat picture on economic activity across nearly all districts, contrasting with August's report, which showed growth in three districts.Multiple

ECB speakers were on the wires. Notably, dove Centeno said downside risks to growth are accumulating and a 50bps cut is on the table. Whereas, hawk Knot noted pretty confident inflation will hit 2% in 2025, and the consumer recovery will take a bit longer. Others like president Lagarde, Lane, Nagel, Panetta also confirmed disinflation trends, and focus now turns to PMI numbers due today.

Equities:

US – Tesla is up 12% in the post market after reporting Q3 profit that grew 9% yoy and projecting growth for deliveries this year. The Cybertruck has become profitable for the first time. US indexes fell with Nasdaq 100 losing 1.55% and S&P 500 falling 0.92% as big tech sold off. Arm holdings down 6.6% and Nvidia lower by 2.8%.

Japan - Nikkei 225 dropped 0.8% due to caution before Japan's upcoming general election. Concerns arose as polls indicated the ruling Liberal Democratic Party might lose its majority with Komeito. Tokyo Metro surged 45% on its debut, raising 348.6 billion yen in Japan's largest IPO in six years.

Europe - European stocks fell as major companies' earnings missed expectations. L’Oreal dropped 2.5% due to weak Chinese demand. Deutsche Boerse led financial losses, falling 2%, while Adidas declined 1.9% after an HSBC downgrade. However, Iberdrola's positive earnings boosted its shares by 1.5%, limiting the Stoxx 50's decline.

Hong Kong - HSI rose 1.3%, driven by tech and financial gains. Chinese markets climbed on expectations of a CNY 2 trillion market stabilization fund. The PBoC plans to expand its swap facility to boost market liquidity. The IMF forecasts global growth to slow to 3.2% this year. China Resources Beverage jumped nearly 15% on debut.

Earnings - American Airlines, UPS, Southwest, Western Digital, Nasdaq

FX:

The US dollar continued to rally amid higher yields, although the gains slowed later in the session as the Fed’s Beige Book reinforced expectations of rate cuts. Recent themes of geopolitical risks and the increasing odds of another Trump presidency also continue to underpin.Japanese yen was a clear laggard again, with

USDJPY rising above the 200DMA and taking a brief look above 153 once again. The divergence in safe-haven currencies is also stark with JPY losing its haven appeal and CHFJPY rising back above 175 for the first time since July.

EURUSD also extended its decline with Trump trade and a dovish ECB underpinning. EURGBP has risen sharply to 0.8350 after being rejected at the 0.83 support, and divergence in Eurozone and UK PMIs will be key to watch today. AUDUSD testing its 200DMA at 0.6629 currently.

USDCAD shot up to 1.3863 on a 50bps rate cut but lack of certainty around jumbo rate cuts going forward helped pare some of the losses in the Loonie.

Commodities:

Silver dropped over 3.3% to $33.70, retreating from a 12-year high, due to rising U.S. Treasury yields and a stronger dollar impacting its appeal.

Gold fell over 1% to $2,715 after reaching a record $2,750, driven by a stronger U.S. dollar and rising Treasury yields, despite safe-haven demand from the U.S. election and Middle East conflict.

Oil fell after EIA data showed strong U.S. stockpiles, with crude inventories up 5.5 million barrels and gasoline stocks rising by 900,000 barrels. However, concerns over Middle East conflicts, including Israel's actions and Iran's response, partially offset the impact.

Fixed income:

Treasury yields hit their highest since July, even before the 20-year bond auction. The long end outperformed, flattening the curve as Fed rate cut expectations faded. Front-end yields rose 4-5 basis points; 2s10s and 5s30s spreads narrowed by 3 basis points, with the 10-year yield up 3 basis points to 4.24%.Canadian bonds outperformed when the Bank of Canada cut interest rates by half a point, which was as expected. The Canadian 10-year yield increased by about 2 basis points that day.

To stay updated on all economic events of today, please check out our Economic calendar

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FxPro

Economic

Cryptocurrency

Market Picture

The crypto market is developing a correction at a moderate pace. It has lost 1.3% more over the last day to $2.31 trillion, down around 3% from the recent peak. At the same time, the sentiment of greed persists. The corresponding index is in the 70-73 range for the eighth day.

Ethereum continues to lose market share to Bitcoin and other altcoins. As a result, BTC’s share of all cryptocurrency capitalisation has risen to 57.3%, the highest since April 2021.

But that doesn’t necessarily mean an upward trend for the top cryptocurrency, which has pulled back below $67K, losing 1% in the last day and nearly 4% from its peak on 21 October. The price is now close to a local support level at $66.8K. A break of this support will open the way for a deeper correction to $65.5K, near the 61.8% retracement level from the last rally and the late September top.

News Background

Options traders have increased bets on Bitcoin to rise above $80K following the US election. Donald Trump, who is seen as more friendly to cryptocurrencies, has an estimated 63.5% chance of winning.

QCP Capital sees a high probability that Ethereum will break through the $2800 resistance level and reach $3000 as the US election is just two weeks away.

According to media reports, Indian authorities are considering significantly restricting or outright banning private cryptocurrencies, as unlike CBDC, they do not meet the requirements of financial inclusion and security.

German-listed mining company Northern Data is considering selling its Bitcoin mining division, Peak Mining, to focus on AI.

The Bitcoin miner, which mined its first coins on 13 January 2009, has sold a total of $9.6 million worth of BTC, according to Arkham Intelligence. That old whale still has 1,077 BTC worth $72.4 million.

To stay updated on all economic events of today, please check out our Economic calendar

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TD Securities

Economic

Central Bank

The Bank of Canada (BoC) cut its overnight rate by 50 basis points, to 3.75%, while stating that it will continue with normalizing its balance sheet.

With inflation having “declined significantly” over the last few months, the bank said it “expects inflation to remain close to the target over the projection horizon.” Notably in the Bank’s Monetary Policy report (MPR), the quarterly forecast for core inflation is unchanged at +2%.

The bank highlighted the moderate pace of economic growth, stating “the economy grew at around 2% in the first half of the year and we expect growth of 1¾% in the second half. Consumption has continued to grow but is declining on a per person basis.” The Bank expected GDP growth to “strengthen gradually” over the coming quarters supported by lower interest rates.

On the future path of policy, the bank noted that “if the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further.” However, it also noted that the timing and pace of further reductions will be guided by the data.

Key Implications

Now that headline CPI inflation has dropped below the 2% target, the BoC has gained confidence that it can cut rates at a quicker pace. While there isn’t much in the way of a changing economic narrative – slow GDP growth and core inflation above 2% remain – the central bank is set on doing what it can to boost economic growth. Will a 50 bp move achieve this? Probably not, but the central bank felt it should do something with economic data continuing to show that the country is stuck in a rut. Hopefully we get a bit more clarity on this in the press conference.

This won’t be the end of rate cuts. Even with the succession of policy cuts since June, rates are still way too high given the state of the economy. To bring rates into better balance, we have another 150 bps in cuts penciled in through 2025. So while the pace of cuts going forward is now highly uncertain, the direction for rates is firmly downwards.

To stay updated on all economic events of today, please check out our Economic calendar

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Glendon

Economic

The world of trading offers numerous tools and strategies to help investors manage risks and maximize gains. One such valuable tool is the stop-limit order. This hybrid order type is particularly popular among active traders looking to control when they enter or exit a trade without leaving it completely to market forces. In this article, we'll explore what stop-limit orders are, how they work, when to use them, and scenarios where they can significantly impact your trading outcomes.

Understanding Stop-Limit Orders

A stop-limit order combines the features of two types of orders: the stop order and the limit order. Here’s a breakdown of each component:

Stop Price: This is the price at which the stop-limit order is triggered. When the stock or asset reaches this stop price, the order becomes active, transitioning from a dormant order to an executable one.

Limit Price: After the stop price is reached, the order turns into a limit order. This means it will only execute at the limit price or better.

By combining these two order types, investors can set both the trigger price and the maximum/minimum price at which they're willing to buy or sell.

How Does a Stop-Limit Order Work?

To understand how a stop-limit order operates, let’s consider an example:

Imagine you own shares of Company XYZ, currently trading at $100. You want to sell your shares if the price begins to drop but also want to ensure you don’t sell them too low if the price takes a brief plunge. In this case, you might place a stop-limit sell order with a stop price of $95 and a limit price of $93. Here’s what would happen:

If XYZ’s stock price falls to $95, the stop-limit order is triggered, turning into a limit order.Now, the order seeks to sell your shares, but only if buyers are available at $93 or higher.

This setup protects you from selling too low, especially in a volatile market where prices can swing rapidly within seconds.

Key Benefits of Stop-Limit Orders

Controlled Pricing: A stop-limit order allows traders to establish a specific price range, providing greater control over the final execution price.

Reduced Risk: By setting a stop and limit price, investors can manage risk more effectively than with market orders, which may execute at an unfavorable price.

Flexibility in Volatile Markets: When trading highly volatile assets, stop-limit orders help ensure that sudden price dips don’t lead to unwanted sales.

When to Use Stop-Limit Orders

Stop-limit orders can be valuable in specific trading scenarios, especially when an investor wants to avoid selling or buying at highly unpredictable prices. Here are some instances where they might be ideal:

Protecting Gains: If your stock has appreciated, you can use a stop-limit order to lock in profits, selling only if the price falls to a predetermined level.

Managing Losses: Rather than using a simple stop-loss order, which could sell at any price during a rapid decline, a stop-limit order lets you set a price floor, reducing potential losses without panicking.

Entering at a Preferred Price: For investors looking to enter a stock at a lower price, a stop-limit buy order can be placed. This type of order will only execute if the price drops to a specified level, creating a buying opportunity within a set range.

Pros and Cons of Stop-Limit Orders

Pros:

Increased Control: Allows investors to set a specific price range for buying or selling, helping avoid panic-induced decisions.

Risk Management: Reduces the risk of trading in turbulent markets and protects gains or limits losses more predictably.

Cons:

Risk of No Execution: If the stock price skips over the limit price, the order may not execute, potentially leaving investors with unwanted exposure.

Potential for Partial Fills: Especially in thinly traded stocks, only part of the order might execute within the limit range.

Setting Up a Stop-Limit Order: Step-by-Step

For investors new to this order type, setting up a stop-limit order might initially seem complicated. Here's a simple step-by-step guide:

Decide on a Stop Price: Determine at what price level you want to trigger the stop-limit order.

Set a Limit Price: Choose the limit price, which is the lowest or highest price you're willing to accept for the sale or purchase.

Monitor Market Trends: Keep an eye on market trends to avoid setting your stop price too close to the current market price, which can lead to premature activation.

Place the Order: Enter the details on your trading platform, usually under the "advanced orders" section.

Strategies Using Stop-Limit Orders

Experienced traders often pair stop-limit orders with other trading strategies:

Trailing Stop-Limit Orders: This strategy involves setting a dynamic stop price that follows the stock price as it rises, locking in gains without constantly adjusting the order manually.

Swing Trading: For swing traders, stop-limit orders can help automate buys or sells around support and resistance levels, optimizing profits within short trading windows.

Conclusion

Stop-limit orders are a versatile tool in the trader’s arsenal, offering control, flexibility, and enhanced risk management. Whether you’re an experienced investor seeking to lock in profits or a new trader looking to avoid the volatility of the markets, understanding stop-limit orders can be invaluable in reaching your trading goals. However, it’s essential to weigh the potential risks and benefits before implementing this order type, as it may not suit every trading scenario.

To stay updated on all economic events of today, please check out our Economic calendar

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