BoC Done, ECB Dithers, Fed Tinkers

The loonie pared half of Wednesday's +100 pip jump after the BOC took a hawkish turn and ended its QE. The Fed is likely to start tapering this month or the next (question is whether they can complete it), while the ECB tinkers from one asset purchases program to the next. The first look at US Q3 GDP is coming up next, exp at 2.6% from 6.7%. DAX and Nasdaq remain boosted by falling yields, especially the tumble in "real yields. Here is the long term chart for US real yields. What do you see? Watch the video for the implications of these developments.

Yesterday we flagged the risk that the BOC could skip the second-to-last step in its taper progression and wrap up the program early. That's what happened as the pace of purchases was dropped to zero from $2B/week.

In addition, the BOC moved up its timeline for the closure of the output gap to the 'middle quarters' of 2022 from H2. That's when rate hikes will be firmly on the table.

What may be most important is what wasn't said. The BOC would surely know that the market is pricing in four hikes in 2022 and Macklem did nothing to push back on that timeline. Silence isn't a full endorsement but it's a step in that direction.

With that, USD/CAD fell 125 pips on the news to 1.2300. It later retraced 65 pips on a broad USD bid that was wrapped up in some large bond moves and some late risk aversion. It all bears close watching but could be a symptom of month end.

Next up is the advance look at Q3 US GDP. The consensus is 2.7% q/q annualized and estimates range from +0.7% to +5.0% as economists struggle to forecast the impacts of bottlenecks and delta. Adding a downside risk was a surprisingly large US trade deficit in September. One forecast that got some extra attention was the Atlanta Fed tracker, which put growth at just 0.2%. That's dangerously close to contraction.

The inclination is to fade any moves on a soft report because Q4 is looking much better but a negative reading could complicate FOMC messaging after a taper next week. The baseline is $15B per month but Powell may indicate that it's flexible, adding in a quirk.