By James Langton
(December 3 – 17:30 ET) – Stock markets may have rallied strongly today, but CIBC World Markets economists are warning that the U.S. Federal Reserve Board likely isn’t finished with rate hikes just yet.
CIBC added its voice to Nesbitt Burns Inc., which also warned of a Fed move to a tightening bias at its December 21 meeting, with rate increases expected in February at least. According to CIBC, “A shift in the bias at the December FOMC would help the central bankers maintain the bond market’s current braking force on US growth.”
As for the Bank of Canada, CIBC says with Canadian inflation reports still benign, it can also wait until February before moving on rates. While the Bank doesn’t announce a bias like the Fed does, CIBC says Bank governor Gordon Thiessen may use his public speeches to talk rates up in the meantime. He has two speeches scheduled next week. Monday, he’s at the Fraser Institute, and on Friday he talks to the Finance committee. Watch out for tightening hints, particularly as there really aren’t any major data releases due next week.
The biggest release next week is Wednesday’s report on housing starts. CIBC is calling for a drop of 146,000, and doesn’t anticipate much market reaction to the news.
The U.S. at least gets a Producer Price Index next Friday. CIBC is calling for a 0.3% rise thanks to energy prices, with a minimal rise on the core rate. A 0.3% increase would push the annual rate above 3%, likely inspiring inflation fears in traders. While these numbers risk sparking bearish sentiment, the reaction may be muted by the anticipated modest core rate rise.
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