Bank of Canada Joins the Hawks, Earnings Season Lifts Stock Markets

As expected, the Bank of Canada raised key interest rate guidance from 0.5 percent to 1 percent in its April decision, joining the international hawkish stance set by the US Federal Reserve and Bank of England. The central banks are acting to tamp down high inflation sparked by a global economic recovery from the COVID-19 downturn and geopolitical supply-side fears in the crude oil markets.  

The CAD strengthened against the USD on the news, setting up the prospect of more rivalry and volatility in the pair during May when the Federal Reserve is expected to hike US interest rate guidance to 1 percent.  

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ECB diverges from hawks

Relative to the BoC and Federal Reserve, the ECB is staying dovish and is expected to keep its key interest rate guidance at 0 percent later today when the central bank announces its April decision. The Eurozone faces strong headwinds from inflationary pressures and fears over a recession caused by the Ukraine conflict. Hiking interest rates under these circumstances might increase the risk of defaults in the household and corporate credit markets. The EUR currency pairs may move if there are any unexpected signals from the central bank.  

Earnings season starts

Global stock exchanges were lifted as earnings season started, led by large-cap travel companies like Delta Airlines which reported better-than-expected revenues for the first quarter while forecasting a return to profit over the next three quarters.  

Earnings reports to watch for later today include financial giants Wells Fargo & Co, Citigroup, Morgan Stanley and Goldman Sachs. The financial sector’s corporate reports may provide vital clues as to interest rate income expectations in the next quarter.   

Finally, in the commodity markets, spot crude oil prices remain elevated. Crude oil demand is expected to keep rising as traveling picks up and COVID-19 restrictions are lifted in regions around the world.  

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