22 April 2021
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Bank of Canada tapers QE and brings forward expected rate hike

By Daniel Richards

  • The Bank of Canada (BoC) kept policy rates unchanged yesterday at 0.25% as expected, but trimmed asset purchases by CAD 1bn to CAD 3bn per week reflecting a more optimistic economic outlook despite rising coronavirus cases in the country in recent weeks.  The BoC also brought forward the timing of its first interest rate hike to 2022 from 2023.  While the Bank said it would not raise rates until the recovery is complete and inflation sustainably at 2%, it now expects this to be achieved faster.
  • UK CPI rose to 0.7% y/y in March, up from 0.4% in February but slightly lower than consensus estimates of 0.8%.  The main driver was higher fuel costs although clothing prices increased as well.  Food prices declined on an annual basis.  Inflation is expected to accelerate as the economy continues to reopen and the discounted VAT for hospitality expires later this year.  However, the BoE is likely to look through this higher inflation as it doesn’t expect it to be sustained over the medium term.  
  • The International Air Transport Association (IATA) released a report yesterday on the outlook for the industry, saying that travel is only likely to recover in the second half of this year to 43% of 2019 levels.  International passenger traffic was down almost -87% in the first two months of the year.  The report blamed travel restrictions and quarantines for the weak demand at the start of 2021. IATA was more optimistic on domestic air travel than international travel, with domestic passenger traffic expected to reach 96% of 2019 levels in H2 21. Air cargo is expected to outperform the passenger side of the business again this year, with growth of 13%.  Cargo volumes are expected to rebound to pre-crisis levels this year.  
  • Saudi Arabia’s National Centre for Privatisation aims to agree SAR 15bn (USD 4bn) in public-private partnership projects in the infrastructure space this year, as well as speeding up the sale of public assets. 
  • The main event today is the ECB meeting, although analysts do not expect a change in policy at this meeting. US jobless claims will also be closely watched following last week’s sharp decline in the number of new jobless claims.

Today’s Economic Data and Events

15:45 ECB rate decision: forecast deposit rate -0.5% (unchanged)

16:30 US initial jobless claims: forecast 610k

18:00 US existing home sales (Mar) forecast 6.11m (-1.8% m/m)

Source: Bloomberg

Fixed income

  • US Treasuries held within a relatively narrow range overnight with few fundamental catalysts to push the market one way or the other. However, USTs have opened strong this morning with yields lower across the curve. The 2yr yield has slipped to 0.1452% while the 10yr is down another 2bps to 1.5344%.
  • Market attention will focus on the ECB later today where policy is broadly expected to stay unchanged with scrutiny over the pace of the bank’s PEPP, its bond buying programme. European bonds were generally higher across the board last night, albeit marginally so.
  • Equate priced a USD 700m 7yr bond at +140bps over midswaps.


  • FX markets showed fairly muted moves overnight with dips in the Euro mid-day unwound later in the session with that pattern generally replicated across most peers. The notable standout though was USDCAD which fell almost 0.9% in favour of the loonie to 1.2497. That followed the Bank of Canada saying it would cut their level of asset purchases and look toward an eventual rate rise. The hawkishness comes as Canada’s economy has managed to recover strongly out of the Covid-19 pandemic, even if some provinces are forced to endure stringent lockdown measures.   


  • Global equity markets had a better day yesterday, clawing back some of the losses seen almost across the board on Tuesday. The European composite STOXX 600 closed up 0.7%, with the DAX, the FTSE 100 and the CAC gaining 0.4%, 0.5% and 0.7% respectively.
  • In Japan, the Nikkei lost a further -2.0% as resurgent Covid-19 cases are weighing heavily on sentiment there. There has been a 2.1% gain in trading so far today, but the benchmark index remains down -1.8% w/w. Similarly in India, the SENSEX is now down -1.7% w/w as cases surge there too.
  • In the US, all three benchmark indices recouped their earlier losses, with the NASDAQ the biggest gainer at 1.2%, followed by the S&P 500 and the Dow Jones which both closed up 0.9% yesterday.


  • Oil prices were lower overnight. Brent futures fell 1.9% to 65.32/b, WTI was down 1.8% to 61.35/b while Murban gave up 2.7% to close at USD 63.29/b. Anxiety over how badly demand could be affected by India returning much of its economy to lockdown conditions is weighing on oil even as demand in markets like the US remains robust.
  • US crude inventories showed a modest build in commercial stocks of around 600k b/d. Production held at around 11m b/d while product supplied slipped back to less than 19m b/d.

Click here for charts and tables

Written By

Daniel Richards Senior Economist

Edward Bell Head of Market Economics

Khatija Haque Head of Research & Chief Economist

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