Market Analysis: The Week Ahead, BoE Minutes and BoC Rate Decision

7th September 2015 By: Ranko Berich

Wednesday: BoC may be forced to at least consider further easing

All expectations are for the Bank of Canada to maintain its key interest rate at 0.5 per cent next week. But this is a central bank that has already shown this year that it’s willing to act proactively and without warning.

The statement accompanying July’s cut to 0.5 per cent described China as ‘slowing’ and ‘pulling down’ commodities important to Canada’s exports. This now seems like the understatement of the century with commodity prices sent reeling after the collapse in Chinese equity markets and last week’s subsequent extreme market volatility.

The fall in crude oil and commodities has done enormous harm to the prospects for investment in the Canadian economy. Even though we’re unlikely to see action this time around, there is no doubt that last month’s volatility was a game changer for commodity markets, and the Bank of Canada will be forced to at least consider further easing.

Thursday: Uncertainty to be met by extreme caution in BoE minutes

Uncertainty has been the main challenge faced by the Bank of England over the past year, and extreme caution has been its consistent response.

The latest ECB conference was a pessimistic affair that focused on the numerous risks facing the eurozone, including weak external demand, falling commodity prices and market volatility. But given these risks are just as relevant to the UK, how hawkish can the Bank of England really afford to be?

Core inflation in the UK is on a downwards trend, sitting barely higher than in the eurozone, which gives more than enough reason for the Bank of England to hold off on rate hikes until well into 2016. While recent increases in wages will give one or two hawks reason to dissent, the consensus on the committee is likely to rest firmly in favour of more caution.

Any market participants still expecting 25 basis points of hikes per quarter are likely to receive a sharp awakening from the Bank of England. Given recent volatility, these minutes will be more of an opportunity to confirm that any further rate hikes will be slow and steady.