In its last policy meeting, the Bank of Canada paused interest rate hikes. It wanted to observe the impact of its last rate hike on the economy, inflation, and GDP.
On June 7, 2023, the bank announced a 25 bps hike to 4.75%. It cited stubbornly high inflation and a resilient Canadian economy for the decision. The policy is not restrictive enough to slow the consumer price index down to the 2.0% target.
The bank decision is bearish for resource firms. Expect an economic slowdown to hurt Teck Resources (TECK), Suncor Energy (SU), and Cameco (CCO).
Canadian banks should thrive from the rate increase. Net interest income will rise, as will net interest margin. However, capital markets will slump as deals dry up. In addition, weaker stock markets will discourage investors from trading, hurting the trading fees banks earn.
TD (TD) and Royal Bank (RY) are the two biggest firms in the banking sector to consider. CIBC (CM) posted an improving quarter that should attract buyers. Bank of Montreal (BMO) posted a surprise increase in loss provisions. This is due to its Bank of the West acquisition.
Unable to break out, the Bank of Nova Scotia is not likely to offer any upside at current levels.
