BMO's Markets Wrap; On North America

Bank of Montreal in its morning note of this Wednesday noted U.S. equity futures were higher this morning following reports from Pfizer that a third vaccine dose provides protection against Omicron in lab tests. U.S. Treasuries were off their best level following the news, with 10-year yields steady at 1.47%. Notably, UST 2-year yields pushed their highest level since March 2020 at 0.70%. The risk on tone was weighing on the U.S. dollar, with most major currencies modestly firmer. The loonie was a bit stronger ahead of the BoC this morning, around C$1.263, with oil up modestly to above $72.

BMO noted the Bank of Canada takes the spotlight today, with the policy announcement due at 10am. While no policy changes are expected, Friday's blowout jobs report added a "layer of intrigue." The strength in the labour market provides the BoC with one less reason to keep rates at the lower bound of 25 bps. Indeed, inflation running at near 5% was already making the Bank uncomfortable with their extremely easy policy stance. And, you can add the persistent strength in the housing market as another reason to start tightening. Given the labour market, inflation and growth backdrop, BMO said there's a chance the BoC could signal that rate hikes are coming even sooner at this meeting. "From our perch, it's hard to argue against the fact that rates probably need to start moving higher." However, BMO added, the Bank will also need to account for the uncertainty surrounding Omicron and the potential impact of another pandemic wave, which might keep policymakers most hawkish leanings at bay. BMO noted that this is NOT an MPR meeting. Accordingly, Deputy Governor Gravelle will deliver the Bank's Economic Progress Report on Thursday afternoon, to better flesh out what policymakers are thinking.

In the U.S., we'll get the October Job Openings & Labour Turnover Survey (JOLTS) at 10am. Already out this morning, MBA mortgage applications rose 2% for the week of December 3rd. Purchases slipped 5%, while refis jumped 9%. Lastly, there's a $36 billion UST 10-year auction at 1pm.