Asian equity markets are mostly lower this morning reflecting concerns about downside risks to economic growth. China saw a fall in its trade surplus in November. Both exports and imports slipped possibly partly due to Covid restrictions. Australian GDP rose by 0.6% in Q3 down from 0.9% in Q2. That deceleration may boost hopes that interest rates in Australia will soon peak. German industrial production fell by a smaller than expected 0.1% in October, while September was revised up. In the UK, the Halifax house price index for November recorded its biggest monthly drop since 2008.
Today’s Bank of Canada monetary policy update is expected to result in a seventh consecutive interest rate hike but there is uncertainty over how much they will be raised. Each of the last two meetings has seen a slowing in the pace or increases from 100 basis points in July to 75bp in September and 50bp in October. A majority of forecasters are expecting a further deceleration today to just a 25bp rise, which would take the policy rate to 4.0%. However, a sizeable minority look for another 50bp increase and, with last week’s stronger than the expected labour market report providing support for the larger move, the outcome is not a foregone conclusion.
Possibly of even more interest to markets will be any signal of where rates are likely to peak. Many economists think that the BoC may at least pause its hiking either after today’s announcement or the next one in late January. Moreover, market pricing points to a peak rate of about 4.30% around 65bp below the expected high point in the US.
Most of today’s data are updates to previous releases. In the Eurozone, Q3 GDP growth is expected to be left unrevised at 0.2%. However, the report will include new detail on the drivers of growth. The estimate for Q3 employment will provide further indications of the strength of the labour market.
In the US, Q3 labour productivity growth is expected to be revised up which should lower the rate at which unit labour costs rose during the quarter. Nevertheless, labour costs are still expected to be growing a rate that the Federal Reserve is likely to regard as too high for it to achieve its inflation target. Finally, in Japan Q3 GDP is predicted to be revised up modesty although it is still thought to have fallen compared with Q2.
Early Thursday, the UK’s RICS house price balance for November will be released. Concerns that higher interest rates are having a negative impact on the housing market have already shown up in some data and it will be interesting to see if that will also be seen here.
Bond yields saw small drops in both the UK and the US yesterday. Meanwhile, in currency markets, the US dollar posted gains against both the euro and sterling.
