Key events in developed markets

The Bank of Canada meets next week, and while we expect it to remain on hold for the moment, we still suspect the market is underestimating the chances of a rate cut in the next few months. The Bank seems relatively relaxed about the risks facing the economy saying that “nascent evidence" points to a "stabilising" global economy and that Canada’s growth is likely to “edge higher over the next couple of years”. But we still think the BoC might have to step in, albeit reluctantly, to provide a little more support to the economy early this year. The labour market has offered some temporary respite but retail sales were much lower than consensus, falling 1.2% in November. This shows, as Governor Stephen Poloz stated last week, that "the Canadian economy is not immune to global developments" and key risks might materialise in 2020, hence providing some justification for a cut.

The Norwegian central bank is also meeting next week, although this is only an interim meeting where the central bank traditionally doesn't make any changes to interest rates or its rate path. We expect the bank to reiterate that ‘the policy rate will most likely remain at this level in the coming period’ but communication should be fairly limited and as such, we should see very little market reaction. The risks remain tilted to the upside, and our base case is currently a hike in the second quarter as the central bank is still pencilling in the probability of a partial rate hike in the first half of this year.