Midday brief – BOC Interest Rate Decision in focus

Stock markets in the United States and Europe remained in a largely bearish mood during the US sessions as traders moved into risk-off sentiment mood for most of Wednesday.

Aside from the strengthening US dollar against most major currencies and bond yields rising, a big focus for traders was the Bank of Canada rate decision.

The Bank of Canada raised the target for its overnight rate by 50bps to 4.25% in its last meeting of 2022, in line with market expectations, and pushing borrowing costs to the highest since 2008.

Policymakers added they are also continuing their policy of quantitative tightening. Policymakers noted that economic growth remains strong although it is expected to stall through the end of this year and the first half of 2023.

Also, the labour market remains tight while inflation is still too high and short-term inflation expectations remain elevated.

Looking ahead, the central bank will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target, in a sign the tightening campaign could be near an end.

For the record, the central bank of Canada has raised rates at a record pace of 400 basis points since March. It is likely the first-rate hike of 2023 will be 50 basis points given today’s policy statement.

The energy markets were also extremely busy this afternoon. Brent oil lost nearly all of the gains it made in 2022, after breaking below $80,00 level on Tuesday for the first time since early January.

Moreover, the difference between the highest and lowest price at which Brent has traded is $62, the largest range since 2008.

The fall in oil prices has been driven by fears that demand will get crushed amid a global economic slowdown. Positive news regarding China lifting COVID-19 restrictions failed to lift oil prices.