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Bank of Canada ended the bond purchase program

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
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

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.