Global equities, including various sectors beyond just technology, are performing well, indicating confidence in the investment outlook. Canada's economy, although avoiding recession, shows weaknesses, while the U.S. economy demonstrates strength. Inflation trends differ between the two countries, prompting both the Bank of Canada and the U.S. Federal Reserve to consider rate cuts in 2024. Expected rate cuts may prompt cash deployment, which could be a positive for stocks. Overall, futures markets are indicating interest rates will remain permanently higher.
Going back to normal: The BoC balance sheet after quantitative tightening
In a speech on March 21, 2024, Deputy Governor Toni Gravelle discussed the Bank of Canada's return to standard balance sheet management after quantitative tightening, detailing the post-COVID-19 reduction of the Bank's balance sheet by nearly 40% and the shift to a floor system for managing settlement balances. Despite recent pressures in the repo market, these did not affect the QT process, with the Bank prepared to make necessary adjustments. Gravelle emphasized a nearing return to normal operations, focusing on diversified asset purchases to maintain financial stability and support the Bank's policy goals.
Off to the races
The Fed’s highly anticipated March meeting failed to deliver much in the way of anything new, but it at least alleviated some of the market’s recent concerns that rate cuts could be delayed. However, other global central banks including the Swiss National Bank and Brazil took steps to grab the spotlight, with potentially significant ramifications. Market responses were positive across regions, with notable optimism in the U.S. and Asia-Pacific markets due to technological advancements and policy shifts, respectively. The overall sentiment is cautiously optimistic about continued economic expansion without reigniting inflation.
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Short Sellers Up Their Wagers Against Commercial Real Estate Again
Amid rising concerns over bank pressures, falling office prices, and elevated interest rates, short sellers are intensifying their bets against the commercial real estate sector. Notable companies and real estate investment trusts (REITs) face significant short positions as property values plummet, including a notable 15.2% year-over-year drop in U.S. office spaces as of February. This increased short-selling activity reflects broader market fears about the sector's stability and its potential to trigger wider financial distress.
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Works cited: Bloomberg, Apollo Chief Economist