How Odd??

It seems the older I get the more odd things become. Today was a day that saw Ukraine launch US weapons over into Russia that amped up the geo political risk. Normally on a day like this we would see the US Dollar rocket ( no pun intended ) higher. But, alas, we saw the CAD surge against the greenback. Perhaps this is actually some good news. Let’s explore:

This morning Canada released the inflation number for October, and Wrong Way Charlie is at it again. Inflation came in higher than last month, and higher than market expectations. Remember it is not so much what the number is, but rather what the market was expecting it to be. Inflation seems to be heating up a little bit. How odd, I seem to remember some random blogger mentioning something about inflation heating up into the back end of the year…..

But, as inflation goes up instead of down, it also drops the prospect of Uncle Tiff bringing out the big scissors in December. Money markets are now expecting only a 1 in 4 chance that 50 bps get cut in December. This was closer to 40% going into the inflation print this morning. Less chance of a 50 bp cut sends the Canadian dollar up. Good for people who want to buy US currency, people who buy US exports, but a bad omen for people in mortgage land. Couple todays higher inflation print with the fact the real estate market had a good October in a lot of areas, and the prospects of a jumbo cut in my opinion are all but off the table.

Interestingly enough, one of the largest contributors to the inflation up tick was the largest growth of property taxes since 1992. Huh, again, I seem to recall some random blogger saying this would become an issue later in 2024. Property tax hikes are really starting to pinch, and it will continue to be a problem since municipal governments have zero clue about fiscal restraint.

While the 2024 reality show if Dancing with the Realtors continues on Tiktok, I think that Tiff and Co. might end up being the Grinch this December rather than the Santa. There is a little bit of data to be released between now and the BOC’s next announcement, but unless we see some big data surprises in the next couple of weeks, I think 25 bps is all you are gonna get for Christmas this year.

Odds of the cut in December goes down, CAD soars on a day when geo political risk is at its highest point in a year, and inflation is going the wrong way. An odd day indeed.