Investors look to probabilities of interest rate hikes, further oil price slides

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TORONTO — The coming week will likely be a volatile one on North American markets as traders weigh the timing of interest rate hikes by the U.S. Federal Reserve and the possibility of another big correction in oil prices.

The Fed will be the major focus of the week as the central bank holds its meeting on interest rates amid much speculation about when the era of interest rates held near zero since the 2008 financial collapse is going to end.

A steady stream of positive economic data has persuaded many that the Fed will make a key change in the language in its statement on Wednesday. The Fed has emphasized for months that it planned to be “patient” in starting to hike rates. But it’s possible that word may be missing from the announcement as it prepares markets for higher rates.

“I think that’s what people are expecting,” said John Stephenson, president and CEO of Stephenson & Co. Capital Management.

“I think that’s likely, I think the Fed is being extremely accommodative over the last six years. It’s unlikely they will be as accommodative.”

Many analysts have expected the Federal Reserve to move in either June or September, the first Fed meeting after breaking for the summer. But Stephenson thinks the Fed has good reasons to postpone hiking rates.

“The U.S. will eventually raise rates (but) I think that will be delayed until sometime later this year,” he said, adding he’s looking for a December rate hike.

“Clearly we have a situation where, as far as the Fed is concerned — the data is very strong from an employment standpoint so that is looking good. But when we look at things like consumer confidence, and you look at things like factory orders and such, it’s not as rosy out there.”

Meanwhile, worries about another sharp fall in oil prices helped send the Toronto stock market down 1.5 per cent last week amid a fall of about 5.5 per cent in the energy sector.

The latest round of losses were sparked by a report issued at the end of last week by the International Energy Agency which said U.S. oil production was up actually up by 115,000 barrels a day in February.

Until recently, prices had held up around the US$50 a barrel level. But the IEA warned that “behind the facade of stability, the rebalancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly.”

Oil prices fell almost 10 per cent last week.

Elsewhere on the economic front, investors looked to three major Canadian reports coming out this week.

Manufacturing shipments data will be released Tuesday, while Statistics Canada will post the January reading on retail sales Friday. The agency will also release the February consumer price index for February on Friday.