07:17 AM EDT, 07/22/2024 (MT Newswires) -- BMO Economics in its morning note Monday noted global equity markets were mostly lower last week, with the Nasdaq (-2.9%) and Nikkei (-2.6%) at the back of the pack. The Dow (+1.7%) and CSI (+1.4%) were the top performers, with the TSX eking out a modest 0.2% gain. TSX sectors were mixed, with telcos (+3%), financials (+1%, led by banks), and industrials (+0.7%) leading the way higher, while materials (-1.7%), utilities (-0.9%) and tech (-0.7%) were the laggards.

BMO also noted the Canadian dollar lost ground last week, finishing at C$1.373, nearly a penny weaker. It said the combination of softer Canadian CPI and retail sales versus a solid U.S. retail sales report weighed on the loonie. It added: "Speculative positioning remains heavily short the Canadian dollar, but it's off the extremes. Still, until positioning is a bit cleaner, the loonie probably won't weaken aggressively. With this week's expected BoC rate cut almost fully priced in, the impact on the currency will likely come from the Bank's tone and the U.S. data."

Meanwhile, BMO noted, Government of Canada bond yields were little changed last week, as the pull from higher U.S. Treasury yields was offset by the softer Canadian data. It said the inability of GoCs to rally amid the softer domestic data suggests "positioning is likely skewed long and could struggle a bit near-term unless we get a very dovish tone from the BoC or weaker U.S. data". Just as with the C$, markets will be focused on the BoC, and U.S. GDP & PCE data, the bank added.

On data, BMO noted the Bank of Canada's policy announcement on Wednesday morning takes the spotlight this week. A 25 bp rate cut to 4.50% is widely expected, and nearly fully priced into the market. It said last week's data sealed the deal, with June inflation coming on the soft side and retail sales continuing to struggle mightily despite very strong population growth.

BMO said: "Inflation remains above target, but the slow and steady deceleration continues and there's every reason to believe that trend will persist. The economy is already sporting an output gap (excess supply) and GDP growth is expected to remain below potential, widening the gap further. That, in turn, puts increasing downward pressure on inflation. In addition, the labour market is slackening, with the unemployment rate consistently marching higher. Given ongoing strong population growth, there's likely more upside on the jobless rate. Meantime, the housing market remains very much subdued and hasn't reacted much, if at all, to the first rate cut. That gives the BoC a big green light to cut this week." BMO also expects 25 bp rate cuts at the October and December meetings, leaving policy rates at 4.00% at year end.

BMO noted the policy announcement will be accompanied by a Monetary Policy Report with fresh forecasts and there will be a press conference (which there is after every meeting now).

There are no releases today. The rest of the week's data include: new home prices (Tuesday), May's survey of employment, wages & hours (Thursday), and the federal budget balance for April and May could be out late in the week.