By James Langton
(November 1- 11:00 ET) — Stock
prices will advance even if the
U.S. Federal Reserve Board raises
interest rates at its Nov. 16
meeting, say analysts at
Morgan Stanley Dean Witter.
The firm is tilting away from
cash and into stocks in the belief
that the markets will rally if
rates remain unchanged, or rally
on the assumption that any rate
hike will be the last for some
time.
The strongest indication of the
Fed’s next move may come in
Friday’s U.S. employment data.
Canada will receive its own
employment data that day too,
with economists expecting that
the Bank of Canada will follow
the Fed if it moves.
Economists at RBC Dominion
Securities say Fed chairman
Greenspan’s remarks last week
indicate the Fed “appears to be
nowhere close to a major
tightening cycle at the moment,
but it still appears to be leaning
toward tighter policy.” It expects
the Fed to take back the remainder
of last year’s 75 basis points
worth of cuts, with its third hike
at the next meeting.
As for Canada, DS says last
week’s excellent GDP results
indicate the success that has
been achieved in integrating North
American manufacturing. Canadian
firms continue to participate
handily in the U.S. economic boom.
“Although there is no immediate
pressure on the [central] bank to
tighten monetary policy, we believe
that the first rate hike will occur
in November,” DS says of Canada.
The firm also expects rate
increases this month from the
European Central Bank, the
Reserve Bank of Australia, and
the Reserve Bank of New Zealand.
It notes that a small rate hike
is not likely to slow the
economies very much.
DS says there will also be a lot
of attention paid to tomorrow’s
speeches by Greenspan in the U.S.
and Bank of Canada Governor
Gordon Thiessen in Charlottetown.
Finance Minister Paul Martin
will also issue the Fiscal Update
tomorrow, including an indication
of what the federal government
will do with its anticipated
budgetary surplus.
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