China's credit conditions tightening

A headwind for commodity prices

Chart of the Day

China’s credit impulse dropped further in February, and the six-month credit impulse here could be a sign that the recent strong run for commodity prices will come to an end. One counter-argument is that the recovering economies elsewhere mean credit conditions in China will not be as important a driver this time as it sometimes has been in the past.

Macro

US core inflation fell to 1.3% in February. Small businesses' price expectations suggest it will soon rise.

The Bank of Canada kept its policy rate at 0.2% yesterday, so its inflation-adjusted policy rate is -0.8%. Inflation-adjusted policy rates range from a low of -3.2% in Norway to a high of 4.1% in China

Money supply growth in China is still lagging that elsewhere. The US leading the way with growth of 25.8% YoY

The weekly EIA report showed the amount of gasoline supplied to the market rose by 0.6 mn barrels last week and is now 6.6% lower than their average at this time of year over 2017-19.

In the US, mortgage applications for house purchase rose by 7.2% last week, and the 30-year mortgage rate was rose by 3.3%.

Markets

Yesterday the S&P 500 increased by 0.6% and the Russell 2000 rose by a stronger 1.8%. The S&P 500 has risen by 2.1% in the past week and the Russell 2000 has increased by 3.5%.

Volatility is heading back down - the VIX fell to 22.6 yesterday, from 24.0. A week ago, it was 26.7.

The BoC’s statement was interpreted as a bit dovish, with the 10y-2y curve falling more than elsewhere. Canada’s curve has still steepened the most in the past month though.

The S&P 500 generally outperformed the other advanced economy equity indices yesterday. Since the start of 2020, the Canadian TSX has underperformed the S&P 500 by 9.2% and the FTSE 100 has underperformed by 26.1%.

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