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Premarket: Stocks inch higher as Brexit vote looms, Yellen cools rate talk

Jamie McGeever
05:25 EST Wednesday, Jun 22, 2016

LONDON — Stocks and sterling rose while traditional safe-haven assets gold and bonds slipped on Wednesday, as investors were guardedly optimistic about a “Remain” vote in Britain’s European Union referendum later this week.
Riskier markets also drew support from Federal Reserve Chair Janet Yellen’s cautious comments on the U.S. economy the previous day, in which she virtually ruled out a July rate hike.
Europe’s FTSEuroFirst index of 300 leading shares was up 0.1 per cent, Germany’s DAX was up 0.5 per cent, France’s CAC 40 was up 0.3 per cent and Britain’s FTSE 100 was up 0.1 per cent.
Basic resource stocks were among the biggest gainers in Europe, lifted by oil’s rise of almost 1 per cent.
U.S. futures pointed to a rise of 0.1 per cent at the open on Wall Street, following on from Tuesday’s 0.27 per cent rise on the S&P 500 Index.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5 per cent, chalking up its fourth straight daily gain, but Japan’s Nikkei fell 0.6 per cent thanks to a stubbornly strong yen.
The strength of the Japanese currency, often considered a safe haven asset, countered the broader increase in risk appetite across financial markets a day before Britain’s EU referendum.
“Although the Remain camp has managed to stem the recent wave of support for the Brexiteers, the outcome is still very much uncertain and trading is likely to be sporadic and volumes thin in the next two sessions,” said Kathleen Brooks, research director at Gain Capital.
“With the EU referendum on a knife-edge, the market is right to look elsewhere for direction. Some of this came from Yellen, who reinforced (the) message that the Fed will slow the pace of rate hikes if the U.S. economy posts another dismal jobs report for June,” she said.
JULY OFF THE TABLE?
Sterling rose around 0.5 per cent against the dollar above $1.47, edging back up towards Tuesday’s near six-month high of $1.4781. The pound has risen 5 per cent since hitting a three-month low of $1.4010 on Thursday.
The polls are extremely close, but betting patterns with bookmakers have shown a re-opening of the gap in favor of “Remain” after the murder last week of a pro-EU lawmaker was deemed to have derailed the Brexit campaign.
For the latest Reuters news on the referendum including full multimedia coverage, click Fed chief Janet Yellen said on Tuesday that the risk of Brexit was something that needed watching “very carefully,” but added that the central bank’s ability to raise interest rates this year may hinge on a rebound in hiring.
“A couple of months ago, Yellen was cautiously optimistic. Now she appears cautious while trying to be optimistic,” said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.
“Judging from her comments, a rate hike in July is completely off the table. It is questionable whether the Fed can have enough solid economic data to back up a rate hike even by September,” he said.
The dollar slipped 0.3 per cent against the yen to 104.47 yen, and the euro was last up 0.2 per cent at $1.1265 .
European Central Bank President Mario Draghi said on Tuesday that Britain’s referendum was adding uncertainty to markets, and that the ECB was ready to act with all instruments if necessary.
As investors grew more hopeful of a “Remain” vote, spot gold languished, falling 0.2 per cent to a near-two-week low of $1,262 an ounce.
On the other hand, oil prices extended their recovery after news of a larger-than-expected draw in U.S. crude stockpiles.
Crude inventories fell by 5.2 million barrels for the week ended June 17, the American Petroleum Institute (API) said. The trade group’s figures were triple the draw of 1.7 million barrels forecast by analysts in a Reuters poll. API/S
Brent crude futures advanced 0.8 per cent to $51.03 per barrel, while U.S. crude futures’ new benchmark August contract rose 1 per cent to $50.34.
Bonds were mostly weaker, with the yield on 10-year UK gilts up two basis points to 1.31 per cent and even longer-dated yields on U.S. and German bonds inching up too.
Benchmark 10-year U.S. and German yields were flat at 1.69 per cent and 0.05 per cent, respectively.

BoC sees economy shrinking in second quarter on Alberta wildfires

BARRIE McKENNA
10:03 EST Wednesday, May 25, 2016

OTTAWA — The Bank of Canada says the country’s economy will likely shrink in the second quarter, dragged down by the Alberta wildfires and persistently weak business investment.
But the central bank, which held its key interest rate unchanged Wednesday, said growth will rebound in the third quarter as the oil patch resumes full production and rebuilding begins in Fort McMurray.
The hit from the fires, which destroyed thousands of buildings in the northern Alberta city, will knock 1 ¼ percentage points off gross domestic product in the April to June period, according to a statement that accompanied the rate decision. In April, the bank had forecast 1-per-cent growth in the second quarter.
It would mark a second bout of contraction in the past year for the economy, which also retreated in the first and second quarters of last year.
In its statement, the bank remarked on the economy’s bumpy recovery from the collapse in the price of oil that began in 2014.
“The economy’s structural adjustment to the oil price shock continues, but is proving to be uneven,” the bank said.
The central bank also pointed to “fragile sentiment” in global financial markets – a worry that Bank of Canada Governor Stephen Poloz highlighted in a recent speech.
The statement also raised fresh concerns about household debt due to “divergences” in regional housing markets. “In this context, household vulnerabilities have moved higher,” the bank said.
The housing market is in retreat in Alberta, but continues to boom in parts of Ontario and British Columbia, where prices and starts continue to ratchet higher.
The rest of the economy is evolving largely as the bank anticipated in its April forecast. The Canadian dollar, now at roughly 76 cents (U.S.), and inflation are both in line with its earlier projections. The price of crude, now just shy $50 (U.S.) for West Texas Intermediate, has recovered some lost ground.
“The global economy is evolving largely as the bank projected in its April monetary policy report,” according to the statement.
And the bank said the risks to its critical inflation projection remain “roughly balanced” – a sign the bank is in no hurry to follow the U.S. Federal Reserve’s lead and raise rates.

Weak data test Bank of Canada’s optimistic outlook

DAVID PARKINSON
16:44 EST Monday, May 23, 2016

Last time we heard from the Bank of Canada, it was raising its 2016 economic forecasts and expressing cautious optimism about the Canadian economy. When the central bank issues its regularly scheduled interest-rate decision this week, we’ll get a sense of whether the economy’s steady stream of missteps has changed its course.
The bank will issue its rate announcement Wednesday, but the decision itself will not be the news. It’s all but a foregone conclusion that the bank will leave its key interest rate unchanged at 0.5 per cent, where it has sat since last July, when the bank made its second quarter-percentage-point rate reduction of 2015.
But in the midst of a spring filled with unimpressive economic indicators, the statement accompanying the rate decision will be far from a non-event. Monetary policy watchers will be combing through the text for any signs that the bank’s optimism about a pickup in the economy this year has been shaken.
The tone of the rate statement could be especially big news for the Canadian dollar. It fell to six-week lows last week after the U.S. Federal Reserve released minutes from a recent policy meeting that suggested the Fed is closer to raising U.S. rates than the markets had previously expected, which triggered buying of U.S. dollars at the expense of the Canadian and other currencies. Any hint, even a small one, that the Bank of Canada rates might be on hold for even longer than expected, or perhaps even heading in the opposite direction from the Fed, could fuel more selling of the loonie.
One thing we absolutely will not get from the bank, however, is an actual update of its economic forecasts. While the bank sets rates eight times a year, it only issues its quarterly Monetary Policy Report, which contains its economic projections, in conjunction with half of those rate decisions. This is one of those between-MPR rate announcements; the next forecast update won’t come until mid-July.
As a result, observers will have to read between the lines of the rate announcement – which typically runs at a trim half-dozen paragraphs or so – to gauge how the bank’s views on the economy have shifted since its mid-April MPR.
The bank’s outlook in April was coloured by an impressive start to 2015, which had prompted it to significantly upgrade its economic growth projections for the first quarter and for 2016 as a whole. But the economy sputtered to the end of the first quarter, and carried little momentum entering the second quarter. The economy in the United States, Canada’s biggest export market, has also looked persistently lacklustre in recent months, raising doubts about the export demand that was expected to be a critical driver of Canadian growth this year.
The Bank of Canada had already anticipated that the economy would take a second-quarter pause from its unsustainably quick start to the year. It forecast only a modest 1-per-cent annualized growth rate for the second quarter – only about one-third of the estimated first-quarter pace. But in light of the discouraging economic data to end the first quarter, private-sector forecasters now expect near-zero growth in the second quarter.
Many experts have argued that the appreciation of the Canadian dollar over the past four months is weighing on the country’s exports, making them less attractive in foreign markets, including the United States, where demand has been looking fragile anyway. The Bank of Canada acknowledged this in the April MPR, when it raised its assumption for the currency for the purposes of its economic forecasts to 76 cents (U.S.), up 4 cents from previous projections. The currency did appreciate modestly in the weeks after the April forecast, but with its recent losses, it is now trading close to the bank’s 76-cent assumption; it likely has done little, if anything, to change the central bank’s thinking.
On the other hand, another key variable – the price of oil – has increased nearly 15 per cent since mid-April, offering a meaningful boost to the country’s beleaguered energy sector and energy-producing regions. The bank may hint at some upside to its economic outlook from the improved oil climate. The bigger question will be whether the price, now approaching $50 (U.S.) a barrel for the North American benchmark crude grade, is yet high enough to entice investment back into the sector. One of the Bank of Canada’s big themes in its 2016 outlook has been the precipitous drop in business investment in oil and gas – which it has projected will be 60 per cent lower in 2016 than in 2014 – and the massive impediment that poses to the economy’s growth prospects.
But the central bank might also address the Alberta wildfires as a temporary drag on growth in the second quarter, given the sizable disruption to oil sands production. Observers will be looking for any indication of how big a hit on growth the central bank anticipates from the fires, and how much and how quickly it expects the economy to rebound once the affected region restarts production and begins to rebuild from the heavy property damage.

Bank of Canada may sound dovish in May, rate hike expected next year: Poll

The Bank of Canada is expected to strike a more dovish tone in its May policy statement, partly due to a still-raging wildfire in Alberta that has disrupted oil production, but a Reuters poll suggests it will not cut interest rates again.

The survey of more than 40 economists this week showed the central bank will probably not move to adjust rates again until the third quarter of next year, when it is expected to raise rates by 25 basis points to 0.75 percent.

To read the full article please click on the link below:
http://www.bnn.ca/News/2016/5/19/Bank-of-Canada-may-sound-dovish-in-May-rate-hike-expected-next-year-Poll.aspx

World economy faces risks, but growth likely: Bank of Canada

Allison Lampert
09:58 EST Wednesday, May 11, 2016

MONTREAL — While the global economy faces a number of risks, including the potential for a shock from China, the most likely scenario is that growth continues, with some headwinds starting to slowly fade, a senior Bank of Canada official said on Wednesday.
Nonetheless, the world economy’s potential growth will be lower than it was 10 years ago, partly due to demographic shifts that policy cannot fully address in the short term, Senior Deputy Governor Carolyn Wilkins said.
“There are a lot of downside risks, but I would say though that the most likely thing is that the economy is going to keep growing,” Wilkins told a panel.
“There’s not the typical inflation pressures you see that would result in very abrupt increases in interest rates and that’s often what triggers downturns.”
The Bank of Canada cut interest rates twice last year to cushion the shock of cheaper oil. While the bank is expected to hold steady when it meets later this month, odds of another cut this year have risen following disappointing trade data and oil production disruptions due to wildfires in Alberta.
One risk the Bank of Canada thinks about is the potential for a shock out of China, which affects Canada not only through demand for exports but also the effect China has on commodity prices, Wilkins said.
While the central bank expects China will experience slower but more sustainable growth, the risks are “pretty important,” she said.
But there are signs that some headwinds facing the global economy are dissipating, Wilkins said, pointing to the U.S. recovery.
“It’s not going to go in a straight line but we see it recovering,” Wilkins said. A stronger U.S. economy is key for Canada’s export outlook.
“I think the focus is on the downside risks because there just seem to be so many of them and we try to take some of those on board so we have a balanced forecast,” Wilkins added.
With the potential for world economic growth lower, the neutral interest rate is also going to be lower and is in the range of 2.75 to 3.75 percent for Canada, Wilkins said.


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