CANADA: BoC Presser Highlights: Removed Rate Guidance Due To Uncertainty
The Bank is stepping up its outreach activities amidst particularly high uncertainty to help monitor latest impacts from any potential tariffs. It wants to narrow down the current "zone of uncertainty" it currently faces and didn't see the worth in providing rate guidance.
Q: BoC’s role in a trade war
Macklem: There are some things that are pretty clear - a protracted trade conflict would badly hurt the Canadian economy, with the whole path of the economy lower. Inflation will be higher on the other hand, it’s a complex shock. We’ll be assessing the trade-off between softer growth and higher inflation, with Macklem mentioning two-sided scenarios where one impact outweighs the other (starting with the weaker aspects outweighing). Alongside our scenario analysis, we’re stepping up our outreach activities with businesses and households.
Q: You said that the scenario in the MPR is a very severe one. If the 25% tariffs come in, is it the Bank’s base case that there will be a recession and higher inflation?
Macklem: It is a severe scenario. The US puts 25% tariffs on every country, not just Canada, and every country responds, plus it’s permanent. It shows two things: 1) most of the simulations were 2.5-3pps lower GDP growth in the first year, which would likely mean a recession, 2) exactly what happens is quite sensitive to model parameters, including how Canadians and Americans respond. As we said, we don’t have a lot of good examples to observe. We’re trying to show it would have a very material effect but there is a certain zone of uncertainty re exactly how quickly and how big. We’re going to try to narrow down that zone going forward.
Q: How should we interpret the removal of rate guidance from the statement?
Macklem: It’s simple. There’s a lot of uncertainty out there, it didn’t seem useful to provide guidance.
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FED: US TSY 13W BILL AUCTION: HIGH 4.230%(ALLOT 95.14%)
- US TSY 13W BILL AUCTION: HIGH 4.230%(ALLOT 95.14%)
- US TSY 13W BILL AUCTION: DEALERS TAKE 53.19% OF COMPETITIVES
- US TSY 13W BILL AUCTION: DIRECTS TAKE 5.07% OF COMPETITIVES
- US TSY 13W BILL AUCTION: INDIRECTS TAKE 41.74% OF COMPETITIVES
- US TSY 13W BILL AUCTION: BID/CVR 2.38
FED: US TSY 26W BILL AUCTION: HIGH 4.135%(ALLOT 61.57%)
- US TSY 26W BILL AUCTION: HIGH 4.135%(ALLOT 61.57%)
- US TSY 26W BILL AUCTION: DEALERS TAKE 22.46% OF COMPETITIVES
- US TSY 26W BILL AUCTION: DIRECTS TAKE 7.79% OF COMPETITIVES
- US TSY 26W BILL AUCTION: INDIRECTS TAKE 69.75% OF COMPETITIVES
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US DATA: Stronger Dallas Fed Manufacturing Only Partly Offsets Wider Weakness
December's Dallas Fed Manufacturing Survey beat expectations with a headline reading of positive 3.4 vs -3.0 expected and -2.7 prior. That's the first positive reading in 32 months and the highest in 33, highlighted by a much stronger new orders reading (up 11 points to -0.9, pointing to unchanged demand from the prior month but still the best reading in 31 months).
- Other readings were mostly stronger vs November, including production, capacity utilization, shipments, expectations, though the employment subindices were a little softer.
- Notably though, there were much lower inflationary pressures evident in the survey, with raw materials prices falling 18 points to a 17-month low 10.5, with finished goods falling 12 points to -3.4, the first negative reading this year.
- Dallas is the 5th regional Fed to publish its December manufacturing report, and overall they were very mixed: Empire fell to 0.2 from 31.2 and Philly to -16.4 from -5.5, with Kansas City to -4 from -2, more than offsetting the improvements in Richmond (-10 from -14) and Dallas.
- That's not to mention the December MNI Chicago PMI which fell to 36.9 vs 40.2 prior, and the preliminary S&P Global PMI dipping to 48.3 from 49.7.
- As such despite an apparent improvement in some regional survey optimism immediately following the November elections (and again, this was quite mixed - the range of survey scores was the broadest since April 2020), the overall theme of the manufacturing sector remaining steady at a weak level generally remains intact.
