(October 15 – 23:00 EST) – Today’s rather ugly market performance notwithstanding most economists seem to bracing for a round of interest rate hikes over the next few months.
Analysts at RBC Dominion Securities Inc. say that this week’s data makes it clear that inflation is building in the U.S. economy. It expects the U.S. Federal Reserve Board to tap rates upward at its next meeting on November 16, followed by a couple of further hikes in 2000, that will drive asset prices lower over the period.
CIBC World Markets Inc. is a little less sure about the Fed’s next move, noting that the focus next week will fall onto Tuesday’s Consumer Price Index. It says that a headline CPI rise of 0.5% will support the notion that the Fed will move again. Although it expects that the equity markets must continue correcting before a Fed hike is scraped.
Opinion is mixed on where markets go next week – although the superstitious recall that the Black Monday crash of 1987 was preceded by a slide the previous Friday. That gloomy Friday turned into a gruesome bloodletting on Monday, before it built a bottom the next day.
Meanwhile, back among the central bankers, DS maintains its position that the Bank of Canada will stand pat for now, but that it will hike rates by 50 basis points through the first half of 2000. This will leave the loonie languishing until improved commodity prices and the current account provide some support. CIBC says that the weak loonie gives the Bank little room to keep its powder dry if the Fed hikes.
The European situation is even murkier. DS says although there has been little new data in the Eurozone it is hearing hawkish talk from everyone except for Bundesbank president Welteke. It expects a 50 bps hike by year end.
– IE Staff