The continued tightening of the monetary conditions in China accelerates the sell-off of both equities and bonds, and 10-year government bond yield remains elevated.
Coincidentally, bitcoin has been on an upward trajectory since April and has hit an all-time high. One would wonder how much money going into that is coming from China.
Switching gears to the North American financial markets, the U.S. President Donald Trump has decided to fire FBI Director, James Comey. Though he has every right to do it as a President, it rarely happened in the past (in fact, it only happened once back in 1993). In addition, it occurred when media reported that a grand jury is in the investigation of the Trump campaign associates with Russian officials, and after Comey had confirmed to Congress that more than one person connected to the Trump campaign was the subject of an FBI counter-intelligence investigation. Does this move indicate that the U.S. democracy is pushed into a dark and dangerous territory?
Source: PRI (full article)
Moving on to Canada, on May 10, Moody’s has downgraded the Baseline Credit Assessments (BCAs), the long-term ratings and the Counterparty Risk Assessments (CRAs) of six Canadian banks. This is to reflect their expectation of a more challenging operating environment for banks in Canada for the rest of 2017 and beyond. TD Bank was the only financial institution with its Counterparty Risk Assessment rating being affirmed at Aa1.
The accommodative monetary policy (i.e.: ultra low interest rates) has been supporting the housing market but heightening the household debt as a % of one’s disposable income as well.
Currently, the street is anticipating at least two rate hikes towards the end of 2018 for Canada to arrive at 1.0% (based on forecasts from 34 participants). It will be both an art and science for Stephen Poloz to deliver his speech in a way that will not spook the markets. We shall see how this will play out towards the end of 2017 as that should be the time when the Canadian central bank will become more hawkish in their tones.
Note: A quick reference below on how Moody’s rating scale works as well as BCAs and CRAs are determined.
Source: Moody’s (full report)
Source: Moody’s (full report on rating methodology on banks)
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