April 26th 2023, 2:00:44 pm

(about a month ago)

Central banks are hawkish, but markets don’t believe

Share On

North American stock markets declined in the second week of February as the continued robust economy made markets concerned that Central Banks, US Fed in specific, may continue with their rate hike cycle. The lackluster earnings report from listed companies and their weak guidance did not help either. S&P 500 and Nasdaq declined 1.11% and 2.41% and Canada’s S&P/TSX Composite retreated 0.70% during the week. 

Although US central bank only increased rates by 25 bps in their last meeting which was below market expectations and was seen as a dovish signal, the officials have been steadfast in their stand that more rate hikes are not off the table. Yet, the market seems to continuously ignore and hope for a softer path ahead.

The recent job markets for both US and Canada have shown the markets are strong and can withstand higher rates. Canada added 150k jobs in January, 10 times higher than the forecast.

However, the mortgage rates in the US ticked down recently with the rate on a 30-year fixed rate mortgage falling to 6.18 and mortgage applications increased 7.4% last week. The housing market could see a better situation adding to higher inflation concerns for longer.