Bank of Canada Governor Mark Carney.
If uncertain investors were looking for guidance from the Bank of Canada, about all they got Tuesday was justification for their uncertainty.
Yes, the central bank held interest rates steady in its regularly scheduled rate-setting decision, and it even tweaked its Canadian economic growth estimates up slightly for 2011 and 2012. But whatever encouragement investors might have taken from the slight upgrade of the Canadian ecomomic view, it was undone by the bank's wobbly-kneed uncertainty about the rest of the world.
Did the statement lack confidence? You could almost hear the banks' collective voices trembling as you read it.
The tone of the statement was established right off the top, with "The outlook for the global economy has deteriorated and uncertainty has increased." That was followed by "The sovereign debt crisis in Europe has intensified, conditions in international financial markets have tightened and risk aversion has risen."
For investors who had already adopted, at best, a love/hate relationship with risk, the Bank of Canada is putting its foot firmly in the camp of the risk-averse. If there was any question, its equivocation on its European outlook - "The Bank continues to assume that European authorities will implement sufficient measures to contain the crisis, although this assumption is clearly subject to downside risks" - pretty much decided it.
The Bank of Canada essentially gave risk aversion its stamp of approval.
Where there are risks to the bank's economic outlook, they are pretty much exclusively to the downside. Furthermore, the bank is seeing a lot of wild cards out there - Europe, the United States, China - that it's finding increasingly difficult to predict.
Lack of visibility for economic and market forecasters has been a problem before - like, say, in late 2008 and early 2009. The course for the equity market then was downward; the unseen risks stifled investors. The Bank of Canada's words are a recipe for a similar course for now - at least until the visibility improves.
"Prolonged uncertainty about the global economic and financial environment is likely to dampen the rate of growth of business investment," the statement said. That spells slow corporate growth - which implies a serious constraint on earning potential.
If you believe in the bank's wisdom, you'd be feeling pretty defensive in the Canadian market today. It's reasonable to think this wishy-washy assessment of the Canadian and global outlook contributed to the Canadian stock market's underperformance, relative to the rest of the world, in Tuesday's trading.
Are Mark Carney and his colleagues really as gripped by uncertainty as they sound? We'll find out Wednesday, when they get another, much longer kick at the cat, with their quarterly Monetary Policy Report. They'll have a chance to explain their thinking in more detail - and then we'll have a better idea of what they're looking at, how clouded the view is, and how worried we should be about it.
David Parkinson