United States
• A coordinated move among leading central banks to provide short-term U.S. dollar funding in Europe helped instill confidence, and contributed to a solid rally in equity markets this week.
• Yet worries about the economy have not changed, so markets will be carefully tuned into the Fed’s policy meeting next week.
• This should prove a most interesting meeting indeed, as the ongoing divergence of opinions at the Fed come to the fore. Proponents of more stimulus will point to a weak economy and sluggish job growth, meanwhile the hawks will point to the ongoing rise in inflation.
Canada
• Stricter mortgage insurance rules have taken some steam out of the Canadian housing market. Home sales fell 0.5% in August, a fifth contraction in the past seven months, while home price pressures eased. However, the impact has not been overly dramatic and the level of housing activity remains healthy.
• Shaky consumer confidence will likely weigh on the housing market in the near term. However, a continued low interest rate environment will likely help support a modest pick up in housing demand in early 2012.
• The key implication of a lower-for-longer interest rate environment, and the resulting elevated level of housing demand is that the Canadian household debt-to-income ratio is likely to rise further.
Courtesy of TD
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