Bank of Canada To Set Rates, DeepSeek Triggers AI Stock Selloff
Monetary policy announcements from the Bank of Canada (BoC), the US Federal Reserve (Fed) and the European Central Bank (ECB) will dominate the news this week. The Canadian central bank is expected to kick off the process with the rest following suit on Wednesday evening and Thursday.
Japanese tech stocks slid in the morning following the rise to surface of Chinese artificial intelligence startup DeepSeek, which some market analysts view as a strong competitor to tech companies such as Nvidia, OpenAI and Meta Platforms Inc. Citi analysts wrote in a note to investors that “DeepSeek is a risk to the U.S. exceptionalism narrative, further questioning the ‘Magnificent 7’ dominance.”
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Bank Of Canada Interest Rate Decision
The BoC’s governing board will convene on Wednesday and is expected to announce its interest rate decision. Most economists suggest that the BoC will reduce its interest rates by 25 basis points, with the benchmark one likely to reach 3.0%. It should be noted that the central bank reduced its borrowing costs twice by 50 basis points between October and December.
Commenting on the upcoming monetary policy meeting, economists at RBC noted in their report: “The BoC clearly communicated in its December policy decision that with the interest rate no longer at obviously ‘restrictive’ levels, the pace of future rate cuts would likely be more gradual, and contingent on economic data. Labour markets are still soft enough to argue that more interest rate cuts are needed for the economy to rebound enough to prevent inflation from undershooting the 2% target. We continue to expect the BoC will ultimately need to cut the overnight rate to a slightly stimulative 2% this year.”
Australia CPI Q4 2024 Report
On Wednesday morning, the Australian Bureau of Statistics (ABS) will publish the Q4 2024 CPI inflation report. Analysts expect the report to show that CPI inflation fell to 2.5% on an annualised basis from 2.8% recorded in the third quarter of the year. On a month to month basis though, they anticipate a 0.3% figure, slightly higher than the Q3’s 0.2%.
Some market analysts suggest that the inflation report could play a significant role when the Reserve Bank of Australia (RBA) decides on interest rates. Economists at ANZ suggested that “we expect trimmed mean inflation to print at 0.5 per cent quarter-on-quarter, which would be the lowest quarterly result since Q2 2021. With the RBA board’s post-meeting statement in December noting it was ‘gaining some confidence that inflation is moving sustainably towards target’, we think that a downside surprise to the RBA’s published forecasts ... will see the RBA cut in February.”
Ifo Business Climate Index Increased To 85.1 In January
According to the German Ifo, business sentiment unexpectedly improved in January to 85.1, boosted when compared to January’s 84.7 reading. Despite the business sentiment upgrade and the current optimism, German businesses are still pessimistic regarding future operations.
ING’s analysts said that “the slight increase in Germany’s most prominent leading indicator does not yet signal an imminent economic rebound. Instead, the economy remains stuck in stagnation with more downside than upside risks in the short term.” They also made special mention of the trade relations between Germany and the US as well as the impact of potential trading policies implemented by the new administration headed by Donald Trump.
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