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Financial Markets Monthly:

Divergence re-emergence

Highlights from this month’s Financial Markets Monthly:

  • The theme of monetary policy divergence re-emerged somewhat in April as the Bank of Canada and Bank of England sounded a bit more dovish while investors are increasingly convinced the Fed will continue with steady rate hikes.
  • Expectations of a more hawkish Fed and a rising inflation premium pushed 10-year US Treasury yields temporarily up to 3% for the first time in four years.
  • Given the BoC’s cautious tone, we no longer expect a rate hike in May. But we still think the data supports 100 basis points of rate increases by mid-2019.
  • Along with the change in our BoC call, we now think the Canadian dollar will remain closer to current levels this year rather than the slight rally previously assumed.
  • Our forecast still assumes the BoE will raise rates next week, but the decision looks much more finely balanced than it was a month ago.

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Lorraine Gingras | Mortgage Specialist l RBC Royal Bank | Royal Bank of Canada | 4501 West 10th Avenue, Vancouver , BC V6R 2J2 | T. 604-315-6216 | [email protected]