The Daily Bulletin November 04

Wednesday saw a dip in the US equity markets as the S&P 500 and Dow fell 0.35% and 0.28% to 2,102.31 and 17,867.58. Canadian equity markets followed the trend, as the TSX shed 0.35% to conclude the day at13, 661.82 pts.

Bond markets across the globe continued the slump yesterday as investors have started pricing in the US interest rate increase. 10-year government bond yield in the US and Canada rose 1.50bps and 1.80bps to 2.23% and 1.63%, respectively. The US interest rates increase would enable, the investors around the globe will substitute riskier sovereign bonds with treasuries, causing bond yields of other countries to rise as well.

The Initial Jobless Claims in the US came in at 276k versus expectations of 262k. Chair of the US Federal Reserve, Janet Yellen while giving her outlook on the US economy yesterday, pointed to the recent decline of the slack in the labor market as a positive sign, and that the Fed discussion of a rate hike remains a “live possibility” for FOMC’s last meeting of the year 2015. Ms. Yellen though, addressed the increasing hawkish sentiment by reiterating that the pace of the rate increase would be “gradual and measured”.

The US Treasury 10yr yields jumped up to a 7-week high of 2.24%, German yields reached 2-week highs and Australian 10yr yields advancing for a 6th day. Investors are now focusing on the US nonfarm payroll labor market indicator for October, with economists’ consensus of 5.0% unemployment rate and 182k job increases for the month.

While in England the BOE released their quarterly inflation report today, stating a downward revision in the outlook of both growth and inflation, putting to rest any possibility of a rate hike in the near future.

The MPC (Monetary Policy Committee) expects consumer price growth to remain below 1% until the second half of 2016, less than half of its 2% target. UK’s GDP growth forecasts for 2015 and 2016 have been lowered to 2.7% and 2.5% respectively, while the MPC raised its 2017 forecast to 2.7%. Although revised downward, the MPC believes demand will continue to be supported by cheaper gas prices and a lower yield curve. The MPC also spoke its exit from emergency stimulus might occur, stating it would not begin selling bonds acquired during its QE program until its benchmark interest rate reaches 2%