PRIMER: BoC Governor Poloz Is Set To Deliver A Speech At 17:00 BST/12:00 EDT, Text Is Due At 16:45 BST/11:45 EDT

• This is Poloz’s first public address since the BoC delivered back to back 25bps hikes in July & September.


• BoC officials spoke en masse in the run up to the Jul decision to indicate that a hike was on the table. BoC deputy Lane pushed back against the recent CAD strength in an address made last week so this is one particular area generating focus heading in to the address.


• Markets currently price a circa 40% chance of a hike at the BoC’s October meeting, and a circa 90% chance of further tightening is priced by year end.

The title of the speech is “The Meaning of ‘Data Dependence’: An Economic Progress Report.” 

Focus will be placed on the BoC governor’s speech as it is his first address since the Bank delivered a second consecutive 25bps hike at the start of the month.

A swift and very deliberate swing in rhetoric indicated that the BoC was willing to hike back in July. While markets priced a virtually even chance of a September hike heading in to the most recent decision (following strong economic data), the BoC ultimately delivered further tightening. In the wake of the move the Bank came under widespread criticism over its closed doors policy (i.e. no communication) between the two hikes.

Last week in an address centring on trade BoC deputy governor Tim Lane managed to partly arrest the CAD strength experienced in recent weeks. Lane warned that the BoC was watching the currency, stating that the central bank is “paying attention to how the economy responds to higher rates and a stronger CAD.”

The deputy governor remained upbeat on the data front. He noted that growth was becoming “broad and self-sustaining.” Lane went on to note that in his view “each meeting is live,” while he stressed importance of data-dependence. He didn’t touch on inflation in any great depth, and the subsequent CPI release showed a small miss on the headline figures, although the average of the three core measures saw some upside surprise.

In the wake of Lane’s comments Scotiabank posited that “this is the kind of central bank speak that usually signals a fairly high degree of discomfort in market moves. We do not think the comments from Lane can be measured by quite the same metric, but there is clearly an agenda of some sort here, and it may be to simply nudge market expectations away from an additional rate increase coming in October and more towards December. We do not think the Lane remarks should be seen as a push back against broader expectations that additional rate increases are likely.”

Following the early summer swing in rhetoric and broad based recent criticism, markets await Poloz’s upcoming comments 1) because he is the governor and has not made any public addresses for so long, and 2) to see if he sides with Deputy governor Lane on any of the matters he addressed last week, which could in turn point towards the central bank being uncomfortable with the recent CAD strength.

Yesterday, Canadian Finance Minister Morneau stated that he sees “higher interest rates ahead” and he noted that that “the Canadian economy can do well with the currency at current levels.” This pushed back against recent chatter which had suggested that government officials were unhappy with the recent BoC tightening as it has led to notable CAD appreciation.

Market Views On The BoC: -

Markets currently price a circa 40% chance of a hike at the BoC’s October meeting, and a circa 90% chance of a hike is priced by year end.

Some Of The Large Canadian Banks Views On Poloz’s Upcoming Address: -

CIBC: The Deputy Governor tried to get markets back into the slow ‘Lane’ in terms of rate hike expectations and their impact on the C$. Governor Poloz could take an even clearer stance on that this week. By downplaying those expectations for further BoC hikes this year, at the same time that the Fed has left a December hike firmly on the table, two-year yield spreads will move back in favour of the US and pull the loonie down from recent lofty levels.

RBC: BoC Governor Poloz speaks publicly for the first time since the July 12th MPR on Wednesday. It should be closely watched for discussion on both the recent rate hike on September 6th and BoC views on a possible hike at the October 25th rate meeting and MPR release. Poloz should have seen preliminary results of the next Business Outlook Survey (released on October 16th) by the time of the speech, with the summer BOS release seeming to be instrumental in the BoC’s hawkish shift in June. No topic has been released yet for the speech, but there will be a press conference that follows nonetheless.

Scotiabank: Bear in mind that the audience will be drawn from an area of the country that is among the most directly affected by soft commodity prices. Newfoundland’s economy is forecast to contract by 1.7% this year and 0.4% next year even while Alberta’s economy (also energy dependent) is registering improved growth this year and next. If the know-your audience rule of thumb applies, then—while it’s almost pure conjecture in the absence of a speech topic—it may be reasonable to think that a cautious message will be delivered. Don’t expect fist-pumping and pompoms in celebration of how wonderfully the economies are performing in, say, Ontario, Quebec and BC. With the next hike forecast for December by Scotia Economics and markets and the September 6th BoC statement having left the door open for further hikes conditional upon the evolution of data, a stronger emphasis upon the conditionality of hiking again after material data has been gathered may be applied next week.

27 Sep 2017 - 09:33- Fixed IncomeData- Source: RANsquawk