Interest rate cuts are finally here – but it didn’t come from the US Federal Reserve, and nor did it come from the European Central Bank.
Instead, we got the first G7-economy interest rate cut from the Bank of Canada (BoC). Admittedly, I didn’t have that on my bingo card.
So what do we make of Canada’s decision? After all, this move will surely come to be viewed as the first domino to fall, concluding this odd window of economic history.
But there’s a technical reason – or tactical, if you prefer – why ASX traders interested in future-looking scenarios may want to keep a close eye on the Toronto Stock Exchange over the next week.
Explaining why is simple. Part of the reason so many ASX companies list in Canada is because our bourse shares a similar skew towards miners and resources extraction.
In that way, Australian miners don’t find themselves in strange lands when they go to the other North America – just in a land of different accents. Investors in Canada are familiar with mining and its economic implications in a way that only Australians could be.
So, in that way – I put it to you that how the TSX behaves in the next few weeks will provide a not entirely unhelpful on what to expect when the RBA cuts rates down under.
Already, the BoC decision to cut rates is having an observable effect.
As of 1pm AEST on Thursday, TSX futures are modestly up after Canadian markets finished in the green, which you’d expect from a country that just made its first interest rate cut.
The Toronto exchange closed up +0.47%, but it’s not the only stock market in the world with futures in the green.
In fact, as at 1pm AEST, most of the major stock exchanges are up – we haven’t seen this kind of cohesion since the NVIDIA earnings rally back in Q1.
While this journalist is aware of at least one bearish Australian analyst who has his questions on the timing of Canada’s move, on the whole, markets are responding well.
And while the Canada decision wasn’t the only catalyst, the news comes as the US markets hit yet another all time high overnight, driven by tech. (We’ve seen at least two dozen all time highs from US bourses this year so far.)
Macquarie had called a June correction for the US markets, but right now, that appears hard to conceptualise.
Don’t forget that at 10.30pm AEST on Thursday, we also get the European Central Bank interest rate decision. (That’s tonight, to use the language of the ear.)
If we get an interest rate cut from Canada and the ECB in the same ~24h period – that could provide an interesting signal to markets. Currently, the US and Australian markets are reassessing when they should expect interest rate cuts, for the umpteenth time.
It’s possible they might’t need to for much longer.
At any rate: light at the end of the tunnel.