Traders to look to Bank of Canada rate announcement

TORONTO — The Bank of Canada is expected to announce this week that it is  leaving interest rates unchanged and continue to give the impression that it’s  in no rush to move them off ultra-low levels.

No surprises are expected Tuesday with economists confident the central bank  will continue to keep its key interest rate unchanged at one per cent. And the  bank will likely leave the language in the announcement largely unchanged,  indicating that a hike in rates is still far away amid worsening economic  conditions around the globe.

Doug Porter, deputy chief economist at BMO Capital Markets, doesn’t see the  bank hiking rates until at least a year from now and adds that the risk is the  bank may take even longer to hike rates.

“It’s very difficult to see the bank raising rates before then. Growth is  struggling to hit two per cent, inflation is struggling to stay above one per  cent, the currency remains doggedly above parity, there’s no obvious reason for  the bank to be raising rates in that environment for quite some time.”

The latest indication of weakness came on Friday when Statistics Canada  reported there was no growth in gross domestic product during September  following a 0.1 per cent dip during August.

That translated into third-quarter economic growth of 0.6 per cent on an  annualized basis, versus expectations of 0.8 per cent growth as exports  registered their worst decline in three years.

There will likely be another reading of weak growth Friday when the agency  releases the November employment report.

“I think we will be fortunate to see any job growth in November,” said  Porter.

“We are seeing moderate job growth, just enough to keep the unemployment  rate flat over the last year and I think that could be the story going into the  next 12 months … that we get just enough job growth to keep unemployment from  rising but I think at this stage of the cycle we would do very well to do better  than that.”

U.S. jobs data also comes out Friday and expectations are fairly muted,  largely because of the impact of superstorm Sandy in the northeast.

“We’re looking for a gain of just a bit more than 100,000 in overall  employment, which is a bit of a step back from what we saw in October,” said  Porter, who thinks job gains would be in the neighbourhood of 200,000 had it not  been for Sandy.

The storm affected 24 states, with the most severe damage in New York and  New Jersey as business was severely curtailed.

On a more positive note, the December number will look quite good because  November figures could be adjusted upward.

Meanwhile, it’s the fear of worsening economies that is expected to produce  another volatile week on stock markets as traders look for some progress in  avoiding a serious budget impasse in the U.S. that could result in steep tax  increases and significant spending cuts at the start of 2013.

This is the fiscal cliff scenario and the worry is that those cuts and hikes  would shock the U.S. economy back into recession.

The TSX and the Dow Jones ended last week essentially flat with markets  whipsawed between positive and negative territory during the sessions, often  depending on the latest take on fiscal cliff talks offered by a prominent  Republican or Democrat.

But the market has avoided going into selloff mode as traders believe that  the two sides will come together on an agreement that would at least be a  framework for arriving at a complete deal later in the winter.

“We are confident they will work out a deal, (but) the history of this kind  of negotiation has been taken right up until late in the 11th hour,” observed  Porter.

“Unfortunately, I think that that will mean a bit of drama for financial  markets before we’re through all that.”

President Barack Obama is insisting on higher taxes for the top two per cent  of earners.

Republicans have said they are open to new tax revenue but not higher  rates.

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