adplus-dvertising
Connect with us

Economy

Canada among investors’ favourite bets for sooner-than-expected interest rate cut

Published

1 year ago

 on

The Bank of Canada building in Ottawa.
The Bank of Canada building in Ottawa. Photo by Sean Kilpatrick/The Canadian Press files

A growing chorus of investors is buying bonds from certain developed nations where they believe interest rates will be cut sooner and faster than many economists expect.

Australia and Sweden are among money managers’ favourite markets for such trades, along with South Korea, Norway, New Zealand and Canada. What they all have in common is an economy battered by highly leveraged households, and a market that has not priced in rate relief so soon.

It’s the opposite of what’s going on in the U.S., where traders have been fading bets on rate cuts this year after stronger-than-expected activity data. While the Federal Reserve is seen reducing rates early next year, the Reserve Bank of Australia and the Riksbank are only seen easing later in 2024.

“The U.S. economy is structurally healthier and able to withstand higher rates for longer than those economies with household leverage imbalances,” said Iain Cunningham, a portfolio manager at Ninety-One Asset Management.

Cunningham has been buying government bonds from Australia, New Zealand, South Korea, and, to a lesser extent, Sweden, since mid-2022, based on the view that the market is wrong in pricing in rate cuts will take so long to come into place.

Investors holding those bets argue that these economies are way more exposed to higher interest rates than the U.S. due to their more elevated household debt levels, and the full effect of their tightening cycles is yet to kick in.

Household debt accounts for about 190 per cent of gross domestic product in Australia, Sweden and South Korea, according to the latest available OECD data referring to the end of 2021. That compares with a ratio of around 95 per cent in the U.S. and Germany.

“As we go into late 2023 and early 2024, we may see a situation where rates are coming down fairly quickly in these economies relative to the U.S. or Europe,” said Martin Harvey, a portfolio manager at Hartford World Bond Fund.

Since late last year, Harvey has increased his exposure to Sweden, Norway and Australia, with the latter being the U.S.-based fund’s biggest exposure excluding Treasuries.

While Australia surprised markets this month by raising interest rates, minutes from the meeting show that the decision was a finely balanced one, given risks to the economy and employment, and Harvey doesn’t rule out cuts later this year as the economy slows. That goes against swaps pricing, which implies the key rate being lifted by an additional 54 basis points to 4.64 per cent by December before cuts begin in the second half of 2024.

In Sweden, markets price roughly 40 basis points in additional hikes by November, according to calculations by SEB, before policy starts to loosen around mid-2024. Pictet Asset Management is mulling increasing its exposure to the nation’s bonds as it expects that excessive tightening by the Riksbank will further hurt the economy, requiring more rate cuts.

Brendan Murphy, a portfolio manager at Insight Investment, which manages around US$1 trillion, is buying South Korean bonds betting the country could take a relatively big hit if global economic growth slows in the coming months.

South Korea’s central bank held policy rates unchanged for a third straight meeting in May, while reinforcing a message that another hike may be possible amid sticky inflation. Prior to the BOK’s announcement, investors and many analysts were betting on rate cuts in Korea later this year, as risks to economic growth build.

“The danger for markets, and risk assets in particular, is that central banks effectively have to sacrifice growth to get inflation back under control,” Ninety-One’s Cunningham said.

— with assistance from Alice Gledhill

 

728x90x4

Source link

Related Topics:
Continue Reading

Economy

S&P/TSX composite gains almost 100 points, U.S. stock markets also higher

Published

1 day ago

 on

September 13, 2024

By

 

TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets also climbed higher.

The S&P/TSX composite index closed up 93.51 points at 23,568.65.

In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.

The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.

The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.

The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.

This report by The Canadian Press was first published Sept. 13, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

Source link

Continue Reading

Economy

Statistics Canada reports wholesale sales higher in July

Published

2 days ago

 on

September 13, 2024

By

 

OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.

The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.

The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.

The personal and household goods subsector fell 2.5 per cent to $12.1 billion.

In volume terms, overall wholesale sales rose 0.5 per cent in July.

Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.

This report by The Canadian Press was first published Sept. 13, 2024.

The Canadian Press. All rights reserved.

Source link

Continue Reading

Economy

S&P/TSX composite up more than 150 points, U.S. stock markets mixed

Published

3 days ago

 on

September 12, 2024

By

 

TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in the base metal and energy sectors, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 172.18 points at 23,383.35.

In New York, the Dow Jones industrial average was down 34.99 points at 40,826.72. The S&P 500 index was up 10.56 points at 5,564.69, while the Nasdaq composite was up 74.84 points at 17,470.37.

The Canadian dollar traded for 73.55 cents US compared with 73.59 cents US on Wednesday.

The October crude oil contract was up $2.00 at US$69.31 per barrel and the October natural gas contract was up five cents at US$2.32 per mmBTU.

The December gold contract was up US$40.00 at US$2,582.40 an ounce and the December copper contract was up six cents at US$4.20 a pound.

This report by The Canadian Press was first published Sept. 12, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

Source link

Continue Reading

Trending