Bank of Canada Maintains Interest Rates Unchanged But Says A Rate Hike Is Necessary

Central Bank

Summary:

The Bank of Canada left its main interest rate unchanged at 0.25% on Wednesday, but said it would raise rates to combat high inflation. According to the statement, it would remove special forward guidance - a special commitment to keep the policy rate at an effective floor.

Quick Review · Bank of Canada Interest Rate Decision

With inflation surging, gross domestic product appearing stronger than expected and the labor market now back to tightening and increasing wage pressures, the market is already betting on a rate hike at this meeting. However, the Bank of Canada surprised markets by keeping its benchmark interest rate at 0.25%. Although the Bank of Canada left policy unchanged at this meeting, the conditions are now judged to be in place to start raising rates, and the statement lays an important foundation for raising rates at the upcoming meeting.

In previous statements, forward guidance had suggested that rate rises could start in the second or third quarter after excess capacity is removed. The Bank of Canada said it now judged that spare capacity in the economy was largely gone. In their related economic outlook, members expressed concern that higher inflation expectations would become entrenched in households and businesses. That could mean faster rate rises to head off higher inflation expectations.

Summary of Bank of Canada Interest Rate Decision

While the upside and downside risks to the BANK of Canada's forecast for inflation are seen as roughly balanced, the upside risks are more worrisome. Until inflation drops significantly, Canadians will come to believe that the risk of inflation staying high for a long time will rise. Higher inflation expectations could in turn lead to more general increases in Labour costs, and inflationary pressures could become embedded in persistent inflation expectations.

Inflation outlook. The Bank of Canada expects the consumer price index (CPI) to average 5.1% year-over-year in the first quarter of 2022, before stabilizing for the rest of the year. The two-year outlook shows CPI inflation at 4.2% this year and 2.3% in 2023. The central bank's target is 2%.

Economic growth prospects. The Bank of Canada cut its 2022 growth forecast to 4% from 4.3% in October. This change is largely the result of inserting revised historical data into the central bank's models. Policymakers actually feel good about the state of the economy. They concluded that the Labour market had fully recovered from the damage caused by the pandemic recession, and they described export and investment intentions as "robust". They forecast that the economy will overcome the adverse effects of the fifth wave and grow at an annual rate of 2% in the first quarter. Their calculations suggest that GDP growth accelerated to an annual rate of 5.8% in the fourth quarter, far better than the 4% rate they had expected last autumn.

The output gap has narrowed. One of the ways the Bank of Canada assesses whether inflationary pressures are building is its estimate of the "output gap," the difference between actual economic output and the level of GDP that the central bank relates to the level of economic non-profitability. (that is, the inflation speed limit) Policymakers think the gap has now narrowed, with estimates ranging from -0.75% to 0.25%.

China's influence. The Bank of Canada lowered its outlook for China's economic growth to 3.8% this year from a previous estimate of 5.3%, a sharp drop from 8.1% in 2021. Canada's central bank governor expects a correction in China's property market that will lead to some of the weakest positive growth the country has experienced in decades.

(Today) Monetary markets are pricing in about a 65% chance that the Bank of Canada will raise overnight interest rates to 0.5% from the current record low of 0.25%. Economists polled by Reuters were less sure, with 77% believing the central bank will wait until at least March.

Caution over the Omicron Variant Has Caused the Bank of Canada to Pause Interest Rate Increases.

Before the bank of Canada decision, the market had been expecting a 25 basis point increase. However, after the data was released, the market waited for the rate to remain unchanged, but the market is more confident that the central bank's next meeting to raise the market price. After all, the economy is booming, employment is at a record high, inflation is at its highest level in 30 years, and the measures to contain Covid-19 are beginning to loosen.

The Bank of Canada does admit that a rate hike is not that far off, while they are unimpressed by the Omicron variant's impact on the economy, the immediate concern is that inflation is weighing on economic activity in the first quarter, and they are unsure how long it will depress economic growth. Nonetheless, they believe it will be "less severe than previous waves" and economic growth will "rebound and remain strong over the forecast period."

On inflation, the central bank's line is that "inflation is expected to fall reasonably quickly to around 3% by the end of this year as supply shortages ease, and then move towards the target gradually over the forecast period".

With the economy in good shape and inflation rising, they expect "interest rates will need to increase, and the timing and pace of these increases depend on the central bank's commitment to achieving its 2% inflation target." They are also expected to start scaling back their bond purchases. Later this year, once they start raising rates, "the Governing Council considers exiting the reinvestment phase and reducing the size of the balance sheet by allowing maturing Canadian government bonds to be rolled over."

We expect the first BOC rate hike to be announced at the March 2nd policy meeting. The Bank of Canada acknowledged that overall "economic weakness has been absorbed" and that "the Labour market has tightened significantly". Moreover, the Bank of Canada's latest quarterly survey shows investment and hiring intentions at record highs, which is consistent with our projection of 3.5% GDP growth in 2022 based on Canada's 4.5% GDP growth in 2021.

With supply chain strains and Labour market shortfalls showing little sign of abating, we are also less confident that inflation will fall as quickly as the BOC expects. As a result, we expect at least four rate hikes in 2022, with risks leaning towards the demand for more aggressive policy tightening.

A Delay in Raising Rates Will Not Change the Trend for the CAD

The market had to price in today's rate hike (with an implied probability of around 70%), which inevitably pushed USD/CAD higher. However, the knee-jerk reaction to the currency keeps the currency stalled around 1.2640, suggesting there is no strong will to turn bearish on the CAD alone on the back of the BOC policy outlook. After all, the central bank's statement clearly paves the way for a rate hike in March, meaning that the current market-priced prospect of five hikes in 2022 remains intact.

We continue to view the Bank of Canada's tightening cycle as a positive for the CAD in 2022, although external factors will also play an important role in guiding the currency from here. Assuming oil prices remain elastic and global risk sentiment stabilizes after recent turmoil, we believe that USD/CAD remains the downward trend for the rest of the year and reaching 1.22 in 4Q2022.

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Bitcoin, crypto crash muddies the regulatory waters Morning Brief

As dizzying as the bedlam on Wall Street has been, aided and abetted by retail investors apparently missing the heady meme stock days of GameStop (GME) and AMC (AMC), it actually pales in comparison to what’s been afoot in the world of cryptocurrencies.

January isn’t even over yet, but crypto is in the throes of a long, cold winter, irrespective of the impulses of El Salvador’s bitcoin-loving president.

Over the last few weeks, Yahoo Finance’s David Hollerith has been all over the carnage taking place in the market for digital coins, where bears appear to have the upper hand. And according to one analyst who spoke with Hollerith, one extreme bear case could see bitcoin (BTC-USD) tumble as low as $14,000.

Whether that grim scenario actually comes to fruition is anyone’s guess. However, one thing is clear: The longer this rout continues, the greater the likelihood that the forces shaping the debate in Washington may opt for regulatory overreach.

The volatility — which has cleaved bitcoin’s gains in half since its November record high above $67,000 — led American Express CEO Stephen Squeri to take a victory lap in a Yahoo Finance Live interview over being cautious about the charge card company jumping into crypto-based payments. It has also prompted the IMF on Tuesday to call on Bukele to pull back on El Salvador’s bitcoin legal tender law.

Yahoo Finance’s Jennifer Schonberger confirmed that the White House is poised to take a more assertive role in the conversation about cryptocurrency oversight. Soon-to-be-released guidance from a National Security Council (NSC) memorandum “will task federal agencies to assess the risks and opportunities that crypto poses, and delve into the details of a central bank digital currency,” Schonberger reported on Tuesday.

Building on last week’s news that the Federal Reserve is openly flirting with the creation of its own digital currency, Schonberger added that the Biden administration’s move “will also review the impact of digital assets on financial stability, and normalizing regulations for crypto with other countries.”

The denizens of D.C.’s political and policy establishments — busy as they are fighting over just about everything — are trying to determine the rules that should govern crypto, an asset class that Securities and Exchange Commission Chair Gary Gensler has been less than enthusiastic about, a status quo he’s called “the Wild West.”

The chairman has a point: There’s been a noticeable spike in illicit and fraudulent activity in crypto. Recently, Hollerith also reported that various scams and hacks have cost crypto investors tens of billions of dollars; meanwhile, a new crypto protocol called Tornado Cash is amplifying ethereum (ETH-USD) laundering fears.

Billed as an alternative to risky, fiat-based asset, crypto has seen a massive influx of small investors. While it’s certainly true that digital currencies are falling prey to the same worries battering stocks, inflated as they are by years of lavish monetary and fiscal stimulus, a key difference is that equities are a heavily regulated asset class. Crypto is, to steal a phrase from Gensler, a Wild West in its infancy, with few guardrails at this point.

Within Congress, various factions are forming to shape the contours of crypto regulation. While some policymakers are inclined to see the industry blossom, others (such as Gensler) would rather err on the side of protecting investors.

Protecting investors from fraud and big losses is ostensibly what regulators should aim to do. Yet as the aftermath of the 2008 financial crisis illustrated, it doesn’t take much for Washington to create new laws that end up becoming way more complicated than originally envisioned. And nothing gets policymakers more agitated than a volatile market that hurts small investors, or creates systemic risk that puts large ones on the brink of insolvency.

If the current bear trend continues, the Great Crypto Rout of 2022 is bound to lead to unpleasant stories of retail buyers in the red, or even bigger players ending up on the wrong side of the trend.

In the absence of a concrete regulatory infrastructure, calls for regulators to “do something” will grow louder — and that could influence the debate in ways bitcoin evangelists may not like (some already don’t).

Source: Yahoo Finance

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Will British Prime Minister Boris Johnson be ousted amid COVID-19 party controversy?_1

Boris Johnson has been increasingly under fire for his actions during the COVID-19 pandemic. A string of news reports have claimed that numerous parties were held at Downing Street in 2020 and 2021, while the rest of the country was under strict lockdown and social contact was extremely limited.

The latest revelation that Downing Street staffers held a birthday party for Johnson last June has led to Dame Cressida Dick, head of London’s Metropolitan police, confirming her force will be investigating whether lockdown rules were broken in Downing Street.

"As a result of the information provided by the Cabinet office and my officers own assessment,” Dick told politicians at the London Assembly, “I can confirm the Met is now investigating a number of events that took place at Downing St and Whitehall in the last two years in relation to breaches of COVID-19 regulations."

Johnson has been fighting to save his position since these reports first started to emerge. As news of discos in the basement and wine bottles being brought in by the suitcase filled the front pages public anger grew. The resentment toward Johnson and his staff reached fever pitch with the report that staff had been partying the night before Prince Philip's funeral -- a particularly painful juxtaposition with the images of Queen Elizabeth seated alone, abiding by the COVID-19 regulations as she said goodbye to her husband.

Downing Street sent a formal apology to the Queen, with Johnson telling journalists: "I deeply and bitterly regret that that happened. I can only renew my apologies both to Her Majesty and to the country for misjudgments that were made, and for which I take full responsibility."

Johnson has maintained that he never knowingly breached any COVID-19 regulations, admitting that he attended what he described as "a work event" in the Downing Street garden last May. He told parliament, "When I went into that garden just after 6 on 20 May 2020, to thank groups of staff before going back into my office 25 minutes later to continue working, I believed implicitly that this was a work event."

He has commissioned a report into these various gatherings to determine whether any rules were indeed broken. The senior civil servant in charge of this report, Sue Gray, was expected to release her findings this week but this report will now be delayed while the police investigate.

Many of his own members of parliament have said they are withholding judgement on his leadership until this report is published.

Will British Prime Minister Boris Johnson be ousted amid COVID-19 party controversy?_2

What could happen next?

There are four possible scenarios:

1. The report finds that Johnson deliberately misled parliament and therefore breached ministerial code. He will then have to resign.

2. The report doesn't prove Johnson lied to parliament but is so damning his reputation is destroyed and he feels compelled to resign.

3. His fellow members of parliament decide they no longer have confidence in him and trigger a no confidence vote.

4. The report exonerates Johnson, the mutinous air within his party subsides and he continues as prime minister.

What happens if he resigns?

According to its (unwritten) constitution, the UK cannot be without a prime minister, so Johnson could continue to serve while a leadership contest is played out. A less likely scenario is that a member of his cabinet will become prime minister until a new leader is chosen.

How can the Conservatives trigger a no confidence vote?

Fifteen percent of Conservative members of parliament -- which amounts to 54 of the 359 currently serving -- need to write to the chairman of the 1922 Committee (an influential group of backbench members), saying they no longer have confidence in the prime minister's leadership.

The current chairman of the 1922 Committee is Sir Graham Brady. We know some letters have been sent but this process is clouded in secrecy with Brady famously telling the BBC during the last leadership contest that not even his wife knew how many letters were coming in.

Once 54 letters have been received, Brady will initiate a no confidence vote.

What is the process for a no confidence vote?

If Johnson wins more than 50% of his members of parliament's votes, then he stays on as prime minister and there cannot be another no confidence vote until 12 months later.

But if he does not reach that threshold, then he is out and cannot contest it.

How does a leadership contest pan out?

If Johnson has resigned or loses the no confidence vote, then the Conservative Party leadership contest will begin, and there will be a series of votes to determine who will be the next leader and prime minister.

Any Tory member of parliament can stand, providing they have enough support from their colleagues. There are a series of rounds to whittle down candidates; if candidates don't meet a certain threshold in each round, then they are eliminated. This shortlisting process continues until only two candidates remain.

What is the timeframe for a leadership contest?

These first elimination rounds can take a few weeks. For the last leadership contest in 2019, it was two weeks.

Once the two final candidates have been selected, all Conservative Party members are then called to vote on which one of the two will be their next leader. Whoever wins the majority in this ballot becomes the next Conservative Party leader and prime minister.

The 1922 Committee determines the time frame for each step.

What happened last time?

In 2019, Theresa May resigned, prompting a Conservative Party leadership contest. Johnson won, securing 66% of the votes, while his rival, Jeremy Hunt, took the remaining 34%. The candidates, besides Hunt, that stood against Johnson, were Michael Gove, Sajid Javid, Rory Stewart, Esther McVey and Andrea Leadsom. Three others -- James Cleverly, Sam Gyimah and Kit Malthouse -- dipped their toes in but never formally ran.

Source：ABC NEWS

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Inflation, Supply Chain, Omicron Expected to Take a Bigger Toll on Global Growth

The pace of economic growth both in the U.S. and globally is likely to decline more sharply than previously expected, the International Monetary Fund says in its latest forecast, citing inflation, fallout from the Omicron variant and chronic supply-chain problems.

The global economy will expand a predicted 4.4% this year, the IMF said Tuesday in its World Economic Outlook. That figure is down from an estimated 5.9% in 2021 and is a downgrade of one-half of a percentage point from its last projection in October.

The decline will be steeper in the U.S.—4% in the coming year, a 1.2 percentage-point downgrade from the October estimate—the largest downgrade for any major country or major group of countries for which the IMF provides forecasts.

In explaining the U.S. downgrade, the IMF’s Gita Gopinath cited the unexpected continuation of high inflation. She said that massive federal stimulus would be expected to lead to rising prices, but that persistent supply-chain disruptions are what propelled the numbers toward their highest level in a generation.

“You’d expect to see higher inflation but not the kinds of numbers we’re seeing at this point,” said Ms. Gopinath, the IMF’s former chief economist who last week took on a new job as its deputy managing director.

U.S. inflation topped 7% in December, according to an earlier Labor Department report, the highest reading since 1982.

Ms. Gopinath said it may take time for the inflation and supply-chain situations to improve.

“The industry outlook is that supply disruptions will for the most part remain elevated until the middle of this year, and then gradually improve,” she said.

The U.S. outlook was also slashed because the Federal Reserve is planning to raise interest rates and because the economy is no longer likely to receive any boost from President Biden’s Build Back Better budget proposal which has stalled in Congress.

Based in Washington, D.C., the IMF is an international lender of last resort which is collectively owned by 189 member countries.

Its previous economic forecast was made before the Omicron variant of Covid-19 triggered a surge in infections and business disruptions. And while the IMF was aware of supply-chain disruptions last fall, they have been slower to resolve than anticipated.

The longer they persist, the more likely they are to feed through to expectations of higher future prices and the larger the risk to the world economy,” the IMF said of the supply-chain issues.

The IMF estimates the damage has already been extensive, with disruptions to the global supply chain shaving 0.5 to 1 percentage point off global gross-domestic-product growth in 2021, while also adding 1 percentage point to core inflation, a measure which excludes volatile food and energy prices.

Ms. Gopinath said that some industries may recover more quickly. If the virus retreats, many consumers may shift their purchasing back toward services and away from goods, which could quickly ease the strain on some industries.

But other industries, like the semiconductor industry which requires massive amounts of investment to fix its supply chain, could remain disrupted for longer, she said.

While the U.S. economy was downgraded the most in the forecasts, a number of countries also saw significant downgrades. The IMF cut its outlook for China by 0.8 percentage points to 4.8%, noting that the problems in China’s real-estate sector have been a drag on its economy.

Growth in the eurozone was slashed by 0.4 percentage points, led by an 0.8 percentage-point cut to German growth. Germany, with its large manufacturing sector, is particularly exposed to the global supply-chain disruptions, the IMF noted.

Source: The Wall Street Journal.

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Crackdown on Chinese IPOs in the U.S. could make investors think twice about betting on tech

Investors may have to think twice about whether to bet on Chinese tech start-ups as new regulations are imposed on mainland companies looking to go public in the U.S.

If listing in Hong Kong becomes the only viable option, fund managers will likely need to rethink their investment strategies, as there are practical differences with how New York stock exchanges handle initial public offerings.

Since the summer, both China and the U.S. have raised the bar for Chinese companies wanting to trade in New York.

Not only investors are affected. Chinese companies looking to raise capital face greater uncertainty about their path to listing on public stock markets, and possibly lower valuations too, analysts said.

Beijing’s actions have more imminent consequences. From Feb. 15, the increasingly powerful Cyberspace Administration of China will officially require data security reviews for certain companies before they are allowed to list abroad.

Putting aside the technical complexities of why and how Chinese companies have worked with foreign institutional investors to list in the U.S., the new regulations could mean that similar IPOs in the future will likely need to go to Hong Kong.

For tech companies, that could mean lower valuations than if they listed in New York, said Richard Chen, managing director with Alvarez & Marsal’s Transaction Advisory Group in Asia.

He said a market familiar with Silicon Valley could put a higher price on a tech company’s growth potential, versus Hong Kong’s greater focus on profitability and familiarity with business models for companies operating physical stores or working in fields such as semiconductors and precision engineering.

With new Chinese regulations, Chen said his clients — mostly traditional private equity firms — are looking more at traditional industrial companies and businesses that sell to other businesses, or sell to consumers without relying much on technology.

“That’s what our clients are taking a think about: ‘Does it make sense to look at those sectors if ultimately it will be a challenge to list in the U.S. given the regulatory concerns?’” Chen said. He added that clients are also rethinking their investment strategies with consideration for whether their minimum goals for a return might be harder to achieve because a Hong Kong listing resulted in a lower valuation.

What it means for investors

Faced with the potential of lower returns — or inability to exit investments within a predictable timeframe — many investors in China are holding off on new bets. That is, if they can raise money for their funds to begin with.

Data from Preqin Pro shows a sharp drop-off in fundraising by U.S. dollar-denominated and yuan-denominated China-focused venture capital and private equity funds in the third and fourth quarters of 2021.

For U.S. dollar funds focused on early-stage Chinese start-ups, annual fundraising since the pandemic started in 2020 has fallen below $1 billion a year — that’s down from $2.43 billion in 2019 and $5.13 billion in 2018, according to Preqin.

While start-ups may be looking for support, U.S. dollar-denominated funds focused on China have been sitting on capital. A measure of undeployed funds, known as dry powder, reached $45 billion in June 2021 — the highest level for at least 10 years, according to the latest Preqin data.

“Due to uncertainty over exiting, we slowed our pace of investment in the second half of last year,” Ming Liao, founding partner of Beijing-based Prospect Avenue Capital,. The firm managed $500 million as of the summer and had previously expected to list some of its invested companies in the U.S. last year.

“Practically speaking, the U.S. is the best path of exit for Chinese internet and technology companies,” Liao said. “There’s high acceptance of new models and high tolerance for unprofitability, while liquidity is very good.”

Last year’s average daily turnover for stocks in Hong Kong, a measure of liquidity, was about 5.4% that of the Nasdaq and New York Stock Exchange in the U.S., according to a China Renaissance report earlier this month.

Even for large Chinese companies like Alibaba and JD.com, the average daily turnover of their Hong Kong-traded shares has been between 20% and 30% of those traded in New York, the report said. The analysts added that U.S.-listed Chinese companies typically price their secondary listing in Hong Kong at a discount.

Chinese IPOs in the U.S. were headed for a record year in 2021, until Chinese ride-hailing company Didi’s listing in late June on the New York Stock Exchange drew Beijing’s attention. Within days, China’s cybersecurity regulator ordered Didi to suspend new user registrations and remove its app from app stores.

The move revealed the enormity of Chinese companies’ compliance risk within the country, and marked the beginning of an overhaul of the overseas IPO process.

Among several measures, the China Securities Regulatory Commission announced new draft rules in December that laid out specific requirements for filing for a listing abroad, and said the commission would respond to such requests within 20 working days of receiving all materials. The commission ended the public comment period on Jan. 23, without revealing an implementation date.

In remarks to reporters last week, Li Yang, chairman of the government-backed think tank National Institution for Finance and Development, described the new draft rules on Chinese IPOs overseas as bringing the country further in line with international standards on institutional investing.

Meanwhile, the U.S. Securities and Exchange Commission in December asked Chinese companies to disclose more details about their regulatory risks and ties to government backers. White House sanctions on certain Chinese companies like SenseTime briefly disrupted IPO plans.

Foreign financial institutions involved with Chinese IPOs face rising “commercial risks” of the invested company “becoming sanctioned because of its reputation with the U.S. government,” Nick Turner, a Hong Kong-based of counsel with law firm Steptoe & Johnson. “This is now one of the key areas of focus in the due diligence process before any IPO.”

What it means for start-ups looking to list

The path to an IPO in Greater China or elsewhere remains uncertain, even if prices are favorable.

“For (Chinese) companies applying for an overseas listing, they likely must wait for further clarification from regulators of both sides, and may expect stricter scrutiny, regulatory clearance, and pre-approval from different agencies and authorities,” the analysts said.

“The new rules may impose long waiting periods for companies hoping to list abroad,” the analysts said. “We expect this uncertainty to dampen investor sentiment, potentially depress valuations for Chinese IPOs in the US and make it more difficult for Chinese companies to raise funds overseas.”

After the high-profile suspension of Alibaba-affiliate Ant’s planned IPO in Hong Kong and Shanghai in late 2020, authorities also delayed the public listing of computer manufacturer Lenovo and Swiss seed company Syngenta on the mainland last year.

More than 140 companies have active filings for Hong Kong IPOs, according to the Hong Kong exchange website. An EY report showed the backlog of companies wanting to go public in the mainland or Hong Kong remained above 960 as of the end of 2021, little changed from June, before the latest regulatory scrutiny.

On the pre-IPO end, 12 Chinese companies joined the list of new unicorns — private companies valued at $1 billion or more — in the second half of last year, according to CB Insights. In contrast, India added 26 unicorns and the U.S. gained 148 unicorns during that time.

Source:CNBC.

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U.S. Home-Price Growth Slowed in November

U.S. home-price growth decelerated in November as months of fast-rising prices pushed some buyers out of the market.

The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 18.8% in the year that ended in November, down from a 19% annual rate the prior month.

Home sales rose to a 15-year high in 2021. Low interest rates spurred robust demand, and remote work enabled some workers to move farther from their offices and seek out more space to work from home. But intense competition for a limited number of homes on the market pushed home prices to record highs.

The median existing-home price in 2021 rose to a record $346,900, up 16.9% from 2020, the National Association of Realtors said earlier this month.

Rising home prices have pushed some buyers out of the market. About 52% of prospective buyers were actively house hunting in the fourth quarter, down from 61% in the second quarter, according to a National Association of Home Builders survey.

“Home prices continued rising, but the pace of appreciation moderated as rising inflation and approaching winter holidays siphoned purchasing power from many home shoppers’ budgets,” said George Ratiu, manager of economic research at Realtor.com. News Corp, parent of The Wall Street Journal, operates Realtor.com.

Home-price growth is expected to slow further in 2022 as mortgage-interest rates have increased.

The Case-Shiller 10-city index gained 16.8% over the year ended in November, compared with an 17.2% increase in October. The 20-city index rose 18.3%, after an annual gain of 18.5% in October. Price growth accelerated in 11 of the 20 cities.

Economists surveyed by The Wall Street Journal expected the 20-city index to gain 18%.

Phoenix had the fastest home-price growth in the country for the 30th straight month, at 32.2%, continuing its record streak in the top spot. Tampa posted the second-fastest growth, at 29%.

A separate measure of home-price growth by the Federal Housing Finance Agency also released Tuesday found a 17.5% increase in home prices in November from a year earlier.

Source: The Wall Street Journal.

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Prospect Of Fed's Policy Conference In January

At 2 p.m. Eastern time, the Fed will release the results of its next policy conference. Although the market is not expected to raise interest rates at this conference, it is expected to look for more information related to tightening policy from it.

Since the Fed announced an accelerated tapering of asset purchases at its December policy conference ($15 billion in November-December and $30 billion starting in January), net asset purchases will end in March at the current pace. The Fed is widely expected to start raising interest rates in March. This suggests that interest rates will remain on hold and there may be a new signal to end its asset purchase program after the conference.

Mr. Powell had said at a Senate hearing in early January that the Fed would normalize monetary policy by the end of the year which indicates that it will withdraw its asset purchases in March and raise interest rates this year. It may start shrinking balance sheets later this year. The question now is at what point the Fed will choose to start implementing these measures. This is the most controversial part of the market right now.

In December's dot plot, the median forecast of Fed officials was for three interest rate increases in 2022. However, with inflation soaring and unemployment falling, the Fed officials and markets have more aggressive expectations that the Fed will raise rates four times this year. Meanwhile, the market is increasingly betting on a 50-basis point interest rate rise by the Fed in March. According to the CME Fed Watch Tool, market expectations for a 50 basis point interest rate rise in March have risen from 53.6% a month ago to 88.2% and 91.1% a week ago. Prospect Of Fed's Policy Conference In January_1

Prospect Of Fed's Policy Conference In January_1

As a result, market expectations are very hawkish about the time and range of interest rates rise by the Fed. Such hawkish expectations have raised the US dollar. But there is a danger that even there is a hawkish policy statement at the conference, the US dollar will decrease if it falls short of market expectations.

If history is any guide, the Fed has never raised rates by more than 25 basis points at any of its policy conferences until now, with the exception of a 50-basis point increase in May 2000. In addition, shrinking balance sheets can also achieve the effect of raising interest rates. Shrinking balance sheets by $350bn - $550bn is roughly equivalent to raising interest rates by 25 basis points. The Fed is unlikely to raise interest rates by 50 basis points in March, in order to avoid triggering market panic, given the combination of interest rate raises and balance-sheet shrinking and the excessive easing by central banks caused by the pandemic. In other words, the Fed may disappoint markets on times and range of interest rate raises, but in turn, it may be more hawkish on shrinking its balance sheet if needed.

Moreover, judging from Ms. Yellen's remarks at the virtual session of the Davos agenda on January 21st, the Labour market is strong. More than six million jobs were added last year, and the unemployment rate is once again below 4%. But Labour supply has not yet returned to pre-pandemic levels. If you compare the labor force participation rate with the unemployment rate, the recovery in the labor force participation rate has been much slower than the recovery in the unemployment rate, and the inflationary pressure has come mainly from supply constraints rather than demand. Traditionally, as the economy develops, central banks can fight rising prices by raising interest rates, which cools the economy and the labor market and in turn damps demand. But in current circumstances, higher interest rates may keep inflation in check, but they will also further bruise the Labour market. This could create the risk of more structural misalignment in the Labour market.

As a result, the Fed is likely to maintain the keynote of its December policy conference. And that could disappoint the markets.

Powell also said at the Senate hearing that it would take two to four meetings to come up with a plan to reduce the U.S. balance sheet. That means there will be no results until March at the earliest and talk of shrinking the balance sheet at this meeting will likely remain "idle talk". That is, Fed officials express their views on shrinking the balance sheet without giving details of when or how much. Judging by officials' previous attitude towards shrinking the balance sheet, hawkish voices may emerge again.

There is little to talk about shrinking balance sheets at the moment, as the Fed is likely to have only limited discussions about the process of shrinking balance sheets, or even how and how much it will shrink. It will show its force when the details of how and how much the balance sheet will be shrunk.

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Bank of Canada Maintains Interest Rates Unchanged But Says A Rate Hike Is Necessary

Quick Review · Bank of Canada Interest Rate Decision

Summary of Bank of Canada Interest Rate Decision

Caution over the Omicron Variant Has Caused the Bank of Canada to Pause Interest Rate Increases.

A Delay in Raising Rates Will Not Change the Trend for the CAD

Bitcoin, crypto crash muddies the regulatory waters Morning Brief

Source: Yahoo Finance

Will British Prime Minister Boris Johnson be ousted amid COVID-19 party controversy?

What could happen next?

What happens if he resigns?

How can the Conservatives trigger a no confidence vote?

What is the process for a no confidence vote?

How does a leadership contest pan out?

What is the timeframe for a leadership contest?

What happened last time?

Source：ABC NEWS

Inflation, Supply Chain, Omicron Expected to Take a Bigger Toll on Global Growth

Source: The Wall Street Journal.

Crackdown on Chinese IPOs in the U.S. could make investors think twice about betting on tech

What it means for investors

What it means for start-ups looking to list

Source:CNBC.

U.S. Home-Price Growth Slowed in November

Source: The Wall Street Journal.

Prospect Of Fed's Policy Conference In January

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