The Bank of Canada is set to cut rates by 0.5%. IMF lowered growth rates for key economies

At the end of Tuesday, the Dow Jones Index (US30) was down 0.02%. The S&P 500 Index (US500) decreased by 0.05%. The NASDAQ Technology Index (US100) closed positive 0.11%. Better-than-expected quarterly earnings results drove stock prices higher on Tuesday and helped the overall market recover from early weakness.

Rising US bond yields led global yields higher on expectations of a slower pace of Fed rate cuts. In addition, the US bond market is factoring in the likelihood that whoever wins next month’s US presidential election will see a surge in budget spending, prompting the Treasury to increase its supply of government debt securities to finance deficit spending.

General Motors (GM) closed higher by more than 9% after reporting third-quarter adjusted EPS of $2.96, which was stronger than the consensus of $2.45, and raised the lower end of its full-year adjusted EPS guidance to $10.00–$10.50 from the previous estimate of $9.50–$10.50. General Electric (GE) closed down more than 9% after reporting adjusted Q3 revenue of $8.94 billion, below the consensus estimate of $9.00 billion.

Economists and markets expect the Bank of Canada (BoC) to cut its key rate by 0.5% today. The probability of this scenario is estimated at 85%. Economists and market watchers are betting that the Bank of Canada will cut the interest rate from 4.25% to 3.75% amid growing evidence that inflation is steadily declining. The Bank of Canada has already cut rates three times this year, and Consumer Price Index data released last week underscored that such a scenario is highly likely. Year-on-year inflation for September fell to 1.6%, the lowest since February 2021. The underlying indicators the Central Bank is focusing on are more resilient but still point to a downward trend.

Equity markets in Europe were declining on Tuesday. Germany’s DAX (DE40) fell by 0.20%, France’s CAC 40 (FR40) closed down 0.02%, Spain’s IBEX 35 (ES35) lost 0.07%, and the UK’s FTSE 100 (UK100) closed down 0.14%. ECB President Lagarde said that the direction of interest rates in the Eurozone is clear as inflation figures are relatively robust and wage growth is starting to weaken at the moment. Swaps put the probability of a 25bp ECB rate cut at the December 12 meeting at 100% and the probability of a 50bp rate cut at the same meeting at 46%.

The International Monetary Fund (IMF) lowered its 2025 global economic growth projection to 3.2%, down 0.1% from its July estimate, leaving its estimate for this year unchanged at 3.2%. The IMF warned of rising risks such as conflict and trade protectionism but praised central banks for controlling inflation without causing a recession. The US GDP is expected to grow 2.8% in 2024, up from 2.6% in July, due to stronger consumption and non-residential investment. On the other hand, growth in the Eurozone will slow by 0.8% this year (vs. 0.9% in July). Growth estimates were also revised downward for China (4.8% vs. 5%) and Japan (0.3% vs. 0.7%). Meanwhile, UK GDP is growing faster (1.1% vs. 0.7%).

WTI crude oil prices approached $71/bbl, up 2% from the previous session, driven by ongoing tensions between Israel and Iran as well as demand dynamics. Clashes between Hezbollah and Israel in Lebanon continue, but direct retaliation against Iran for the recent rocket attack is yet to be seen. Meanwhile, China, the world’s top oil importer, has introduced stimulus measures to boost growth. However, concerns remain that the global oil market could move to a surplus in the coming quarters,

Asian markets were mostly down on Tuesday. Japan’s Nikkei 225 (JP225) fell by 1.39%, China’s FTSE China A50 (CHA50) gained 0.56%, Hong Kong’s Hang Seng (HK50) rose by 0.10%, and Australia’s ASX 200 (AU200) was negative 1.66%. Mainland Chinese stocks rose for a fourth straight session as the effects of Beijing’s stimulus measures became increasingly clear. Earlier this week, the People’s Bank of China cut key lending rates as part of a broader effort to revive economic growth.

Singapore’s annual inflation rate for September 2024 eased to 2.0% from 2.2% in the previous month, compared with market estimates of 1.9%. This was the lowest rate since March 2021. The annualized core inflation rate rose to a three-month high of 2.8%, compared with projections and August’s 2.7%.