Bank of Canada ended the bond purchase program

بواسطة: ميغيل رودريغيز

11:41, 28 October 2021

The earnings season keeps the markets on their toes

Microsoft's 5% rise, driven by the spectacular results reported the previous day and the upcoming Amazon earnings, pushed the Nasdaq index to new all-time highs. However, it did not have an upward continuation during the session ending off the recent gains. 

 

The technology index also benefited from the rise in treasury bond prices with a consequent drop in yields, given the sensitivity of technology stocks to interest rates.

 

Bond movement can only be explained from a technical correction or portfolio adjustment perspective. The market expects the Federal Reserve to announce the beginning of the tapering program, implemented as a stimulus measure for the economy as early as next week. If adopted, it could push long-term interest rates up.

 

Even more so when the Bank of Canada surprised us yesterday with the total withdrawal of its bond purchase program, amounting it to zero. A more hawkish approximation led to a rapid upward movement of the Canadian dollar.  The recent action broke the bullish uptrend of USD/CAD, ongoing since last week. 

The Canadian dollar strengthened despite the weakening of crude oil and their direct correlation. More important in this case was the decision of the Canadian Central Bank to change towards a more "hawkish" bias.

 

Oil had its biggest fall in the last three weeks – almost 3% – without any news behind it to precipitate the drop, just extreme overbought levels and technical reversal patterns from two days ago.

 

The rotation between oil and natural gas continues to be present in the market, as the instruments alternate between ups and downs.

 

Sources: Bloomberg, Reuters

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