The Week Ahead North America: BOC Interest Rate Decision, U.S. Employment

According to the Overnight Index Swaps, markets are 100% priced in for the Bank of Canada to cut interest rates by 50 basis points, which would bring rates to 0.50%.

Mike Leavitt, futures broker at MF Global, said a 50 basis point cut is probably the only option the central bank has left. He also said rate cuts, and even quantitative easing measures, will have limited impact because the global economy continues to pose a risk for the domestic economy.

“Quantitative easing will help to cushion the blow but we are being dragged down by a bigger beast,” he said.

Friday’s U.S. employment report will highlight further weakness in the American economy. According to some market strategists, investors will be hesitant to take long positions in equities ahead of Friday’s data.

The S&P 500 is trading near session lows and, according to Mike McCarty, senior options and equities specialist at Meridian Equity Partners, next week’s data is going to be critical to determining the next market trend.

“Most of the data is expected to be bad,” he said. “If the employment number is worse-than-expected we will make new lows in markets. But if the data is slightly better-than-expected we could see a nice rally higher.”