BOC: Macklem Emphasizes Inflation Expectations;TD Sees Upped Risks Of April Hold
A few highlights from BOC Gov Macklem's speech and subsequent Q&A Thursday are below. There was little change in implied BOC rates on the day and nothing discernable surrounding Macklem's comments - a 25bp rate cut in April remains around 30% priced (see table below), with the next cut only fully priced by July, though Macklem's emphasis on anchoring inflation expectations has at least one analyst reconsidering the prospect for near-term cuts.
- Macklem on inflation: "The more inflationary the impact [of tariffs], the less scope monetary policy has to support the economy. Instead, it needs to put more focus on anchoring inflation expectations, which risk drifting up when inflation rises more and more quickly...We don’t want to see price increases become more broad-based or inflation expectations start to move significantly away from target"
- On managing policy amid trade war uncertainty: "We need to set policy that minimizes the risk. That means being less forward-looking than normal until the situation is clearer. And it may mean acting quickly when things crystallize. We need to be flexible and adaptable."
- On recession risks from the trade war: “If you get broad based tariffs for a long time, yes, that could very well lead to a recession".
- TD Securities writes that Macklem's speech "had a bit of a hawkish tone to it — a substantial portion of the text was focused on the importance of keeping inflation expectations well anchored, with the Governor going so far as to note that price increases would limit the capacity for monetary policy to support the economy." They continue to see 25bp cuts at the next 3 meetings, but say that "following today's speech we have to concede that the risk of a pause next month is increasing", highlighting February's CPI data as another contributory factor.
| Meeting | Current CAD OIS Implieds (%) | Yest (Mar 19) | 1d Chg (bp) | Cumulative Change From Current Rate (bp) | Incremental Chg (bp) |
| Apr 16 2025 | 2.68 | 2.68 | 0.2 | -7.6 | -7.6 |
| Jun 04 2025 | 2.56 | 2.57 | -0.9 | -19.5 | -11.9 |
| Jul 30 2025 | 2.46 | 2.46 | 0.0 | -30.0 | -10.5 |
| Sep 17 2025 | 2.38 | 2.37 | 1.4 | -37.8 | -7.8 |
| Oct 29 2025 | 2.32 | 2.32 | 0.2 | -43.6 | -5.8 |
| Dec 10 2025 | 2.29 | 2.27 | 2.7 | -46.7 | -3.1 |
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STIR: Less-Dovish Waller And Daly Set Tone For Less Implied 2025 Easing
The implied Fed rate path shows a little less easing Tuesday, with end-2025 futures pricing a 3.96% funds rate, up 3bp vs Monday.
- That's still below the 4.05% closing peak after last Wednesday's CPI data, but less-dovish-leaning comments by Gov Waller overnight (eyeing rate cuts "at some point this year" vs his musing last month of cuts earlier than markets expected) set the tone. SF's Daly, usually dovish leaning, noted Tuesday that "policy needs to remain restrictive until, from my vantage point, until I see that we are really continuing to make progress on inflation.”
- The first full cut is still only priced for September (around 27bp), with another :"half-cut" implied by year-end.
- Wednesday's schedule includes the January FOMC minutes (MNI's preview will be out later today).
| Meeting | Current FF Implieds (%), LH | Cumulative Change From Current Rate (bp) | Incremental Chg (bp) | Prior Session (Feb 17) | Chg Since Then (bp) | End of Last Week (Feb 14) | Chg (bp) |
| Mar 19 2025 | 4.32 | -0.6 | -0.6 | 4.32 | 0.0 | 4.32 | 0.0 |
| May 07 2025 | 4.29 | -4.0 | -3.4 | 4.27 | 1.6 | 4.28 | 1.3 |
| Jun 18 2025 | 4.20 | -12.9 | -8.9 | 4.18 | 2.6 | 4.18 | 1.8 |
| Jul 30 2025 | 4.15 | -17.7 | -4.8 | 4.12 | 3.0 | 4.13 | 2.0 |
| Sep 17 2025 | 4.06 | -26.7 | -9.0 | 4.03 | 3.5 | 4.04 | 2.0 |
| Oct 29 2025 | 4.02 | -30.7 | -4.0 | 3.98 | 4.0 | 3.99 | 3.0 |
| Dec 10 2025 | 3.96 | -36.6 | -5.9 | 3.93 | 3.4 | 3.93 | 3.1 |
OPTIONS: Straddles More Prevalent Than Usual Tuesday
Tuesday's US rates/bond options flow included:
- SFRH5 96.06c, traded for half in 4k.
- SFRJ5 95.87/95.81/95.62p ladder, traded for 4 in 2k.
- SFRK5 97.43c, traded for 0.75 in 2k.
- SFRM5 95.93/96.06cs, traded for 1.5 in 7.5k.
- SFRM5 95.68p, traded for 2.5 in 3k.
- SFRM5 95.56/95.68/96.00/96.12 Iron Condor, sold at 2.25 in 3k.
- SFRQ5 95.93^, bought for 34.5 in 2k.
- SFRU5 95.93^, sold at 37 and 36.5 in 8k total
- SFRU5 95.93^, traded for 37 in 2k and 36.5 in 3.5k.
- SFRZ5 96.37/96.12/95.68p ladder, sold at 6.25 in 3k.
- 0QH5 95.93/96.06/96.18/96.43c condor, traded 3.5 in 5k.
- 0QM5 96.06 with 2QM5 96.00 straddle strip, bought for 93 in 1.5k.
- 2QU5 96.62/97.00cs, traded 5 in 3k.
EURJPY TECHS: Resistance Remains Intact
- RES 4: 164.08 High Jan 24
- RES 3: 162.71 76.4% retracement of the Dec 30 - Feb 10 bear leg
- RES 2: 162.49 High Jan 29
- RES 1: 160.88/161.19 50-day EMA / High Feb 13
- PRICE: 158.73 @ 16:16 GMT Feb 18
- SUP 1: 157.90/155.61 Low Feb 11 / 10 and the bear trigger
- SUP 2: 155.15 Low Sep 16 ‘24
- SUP 3: 154.42 Low Aug 5 ‘24 and key medium-term support
- SUP 4: 153.87 Low Dec 14 ‘23
EURJPY has pulled back from its recent high. For now, resistance at 160.88, the 50-day EMA, remains intact. It has been pierced, however, a clear break is required to strengthen a bullish condition and signal scope for an extension towards 162.71, a Fibonacci retracement. For bears, a stronger reversal would refocus attention on 155.61, the Feb 10 low and a bear trigger. Clearance of this level would resume the downtrend.
