BOC: Macklem: "Our Job Is Never Done" But Current Rates "About Right"
The BOC press conference Q&A gets underway - asked why the BOC isn't providing more monetary stimulus (with rates now at the lower end of the neutral range) despite a weak economic outlook amid the US-Canada trade conflict, Gov Macklem says:
- "The role of monetary policy in the current situation is somewhat limited. What we're going through is not just a cyclical downturn... the fact that this is partly structural, and the fact that it's adding costs, limits the ability of or limits the role of monetary policy in boosting demand while keeping inflation low."
- Asked whether the BOC is signalling that its job is now done and it is now in the hands of fiscal authorities to help Canada in its structural economic transition, Macklem reiterates statement language about the new current policy rate:
- "our job is never done... there's still a fair amount of uncertainty...we're going to be assessing incoming data relative to this outlook that we have published and look, if the outlook changes materially, we're prepared to respond... our message today is that with the cut we've made today, and if things evolve broadly in line with this outlook, we think the current policy rate is about right to support the economy and maintain low inflation."
- Re next week's budget: "we will take on board the the new fiscal outlook, in our projections...let's see the budget first before we we get to that. "
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SOFR OPTIONS: Midmorning Option Update
Underlying futures remain higher/near highs as focus turns to US Gov shutdown (Tuesday at midnight if funding deal not reached), curves flatter. Projected rate cut pricing gaining slightly vs. late Friday levels (*): Oct'25 at -22.7bp (-22.4bp), Dec'25 at -41.2bp (-40.5bp), Jan'26 at -50.7bp (-49.9bp), Mar'26 at -60.6bp (-59.9bp).
- +10,000 SFRH6 96.50/96.68/96.87/97.06 call condors, 3.75
- +5,000 SFRZ5 96.56/96.68 call spds 0.75 ref 96.275
- +3,500 SFRZ5 97.50/98.00 call spds .25 ref 96.295
- Update, 26,000 SFRZ5 95.87 puts, cab (huge open interest at 603,823 coming into the session)
SWAPS: Long-end EUR Vol Bounces, Risks May Favour 5/10y EUR Curve
The bounce in 3m30Y EUR swaption vol since the middle of September stands out relative to short/medium tenors, underscoring the confluence of risks facing the long-end of global curves. For investors still demanding carry, the 5/10-year portion of EUR curves may still present a better risk-reward than longer-tenors, even considering the already strong year-to-date performance.
- In the Eurozone, Germany has officially passed its 2025 budget, with Bundestag focus now on passing the 2026 budget by the end of November. While uncertainty remains around the implementation of announced expansionary policies in Germany, a debt financed fiscal impulse remains the base case, which should underpin long-end yields. Meanwhile, the ongoing Dutch pension fund transition continues to add background steepening pressure to the long-end of the EUR swaps curve.
- Elsewhere, French PM Lecornu’s interview with Le Parisien on Friday has done little to assuage political/fiscal concerns in the region’s second largest economy. Domestically induced volatility in France continues to present a spillover risk for semi-core/peripheral peers such as Italy.
- Outside of the Eurozone, well known long-end risks include fiscal/political concerns in the UK and Japan, alongside continued worries around Fed independence in the US. Although global long-end rates have seen a relief rally through September, broader steepening trends remain intact.
- The decline in EUR rates vol since the Liberation Day spike in early April has been most pronounced at the short-end. This reflects increased certainty around the landing zone for the current ECB easing cycle., Most Governing Council members now consider rates to be in a “good place”, with another cut having to be clearly motivated by incoming data.
Figure 1: EUR 3m Swaptions Vol Across Tenors
SONIA OPTIONS: Ratio Put Spread
SFIM6 96.20/95.90ps 1x2, bought for 5 in 1.5k.
