September 29, 2021Money Wellness Education Economy In the news News Trending Weekly update Weekly commentary
What's Happening Today
It’s a relatively quiet day as we head into a new Stat holiday tomorrow. Earlier this year, the federal government passed legislation to introduce a new holiday on September 30th annually, the National Day for Truth and Reconciliation. Much like Remembrance Day, the new Stat will leave the capital markets open, but the bond desk closed.
And because everyone wants to know about interest rates, CIBC Economics is forecasting the Bank of Canada will hike rates 25bp in Q4 2022 and another 75bp by the end of 2023, bringing the overnight target rate to 1.25%. In the US, they are looking for the Fed to hike 25bp in Q3 2022 and 100bp in total during 2023, bringing the Fed funds rate to 1.375% by Q4 2023.
Speaking of our neighbours to the south, there’s quite a bit going on down there. Yellen sends a letter to Pelosi highlighting that the Treasury will begin defaulting on loans shortly after October 18th. Schumer says that a new bill to avoid a government shutdown should be out very soon. He also ruled out using reconciliation rules to suspend the debt limit. Pelosi says “we’ll see”. Meanwhile, the Senate may vote on a “clean” stopgap bill (sans debt limit) to avert shutdown as soon as today. House Rules Committee is said to be meeting this AM to set up new bill to suspend the debt ceiling through mid-December 2022. Reconciliation is the only way that I can think of out of this mess (even if Schumer keeps shooting it down). Unfortunately, that means that the Dems need to sort out the final $3.5trln bill and ensure that moderates and progressives are on board before October 18th. That’s going to be very tough. Also, there’s no plan B. From a market perspective, remember that there’s still a dearth of assets available in the front-end relative to the amount of cash/reserves.
In other news, Yellen says that a political agreement on the global minimum corporate tax rate should come at the G20 summit next month. Also, that the rate could be higher than 15% in the US. Senator Toomey says that the senate is unlikely to ratify. The accord is expected to go into place in 2023 and the Dems can use another reconciliation bill next year anyway.
European markets are higher led by the tech sector with investors picking up deals on shares. The fuel stories out of the UK are a bit jarring, but it’s important to remember that a large part of the fuel/electricity problem is macro in nature (fuel/power shortages) as well as endogenous (labour shortages due to Brexit). For the former, the EU is also exposed given the lack of supply/low reserves of natural gas, and the high costs for substitutes (coal and oil). This could become an even bigger issue if the weather is colder than usual this winter.
In Asia, some economists have downgraded China GDP growth forecasts under the weight of power cuts, while slowdowns in industrial activity is expected to worsen supply chain pressures. China is considering raising power prices for industrial consumers to help ease a growing supply crunch.
As always, give us a shout if you have any questions or if you’d like to chat.