Time for Some Perspective

  • China data not as bad
  • Risk assets find comfort
  • Calls for BoC rate cuts
  • BoC should hold steady

GOOD KIND OF BAD - So far, 2016 has been all about panic and fear. Everything was amazing in 2015, but these first several days of 2016 have been a disaster. Still, there are signs of renewed interest into Tuesday, with many participants feeling more comfortable about the markets following this latest pullback and finally willing to dip back into the waters. Perhaps one major catalyst comes from the early Tuesday release of important China economic data. While the data came out on the whole softer than expected, the market looks to be assigning a victory to the results given the fact that it wasn't as bad as it could have been. Of course, I am welcoming of the price action and hope it continues over the coming sessions, given my long exposure to the Canadian Dollar and South African Rand.

MISGUIDED - Looking at the Canadian Dollar, things are going to get interesting over the next couple of days. While it is clear the collapse in the Loonie to near 13 year lows has come from the concurrent collapse in the price of OIL, it feels like some of the intensified declines in recent trade have also come from another source. Tomorrow, we get the Bank of Canada rate decision. Now, up until a few days back, the broad consensus was that the Bank of Canada would leave rates on hold while perhaps coming out with a more dovish slant. However, the OIL declines in 2016 below $30 have resulted in some revised calls for a Bank of Canada cut tomorrow. But I think these calls are misguided and ill conceived.

Panic should never be a variable in the decision making process. Via @joelkruger

CLOWNS - It is never a good idea to make important decisions, or any decisions for that matter, from a position of weakness. Moreover, panic, should never be a variable in the decision making process. Clearly, the markets have been fraught with fear and panic in early 2016, and this has in turn accentuated the pace of OIL declines. An yet, it is unlikely this pace will keep up, and even more likely the OIL market starts to find a meaningful base. So with OIL prices likely to bounce in the days and weeks ahead, it would probably be best for the Bank of Canada to take the transitory outlook on lower OIL prices and wait it out some more before making any major policy adjustments. Remember, all those who were calling for OIL to $200 back in 2008, are probably the same clowns calling for $10 OIL today. OIL will stabilize over the coming weeks and this stabilization will be a welcome development to a Canadian economy better off without a rate cut.

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