BOC rate hike rattles stock, bond and gold markets

Stocks are declining after investors got spooked when the Bank of Canada restarted their rate hiking campaign. Canada’s central bank is viewed as one of the leaders when it comes to being proactive with monetary policy. ​ They were the first to raise rates in 2022 and then put them on hold earlier this year. ​ The BOC is signaling that more rate hikes could come and that has everyone rethinking that the Fed will be done after the July hike. ​ ​ ​

Oil

Crude prices are higher after the EIA report signaled the US will see strong travel demand this summer. ​ Oil has been sluggish given all the growth concerns from China, but that should stabilize as their central bank is poised to deliver significant stimulus fairly soon.

The EIA report posted a modest draw of 452,000 bpd, a bump in production, and strong demand for crude oil and gasoline. ​ The report does highlight some bearish drivers as production hit the highest levels since April 2020 and as crude exports tumbled.

With global bond yields rising sharply today, that might drive concerns that the market has mistimed the end of tightening, and that might lead to a weaker crude demand outlook. ​ Until we see stimulus from the PBOC, Brent crude might trade between $72 and $82. ​ WTI crude seems poised to be rangebound between the $67 and $75 levels.

Gold

Gold is getting crushed as the bond market signals rate hiking cycles are not ready to end. ​ The Bank of Canada rate decision sent a shiver down the spine of most gold bulls as they are the leading central bank when it comes to action since COVID-19. ​ The BOC was the first major bank to hike and hold, which means today’s message that more hikes are coming is resetting many peak terminal rate bets.

Gold is facing critical support at the $1950 level and if that breaks, bearish momentum could eye the $1935 region. ​

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