Working the odds on the Fed’s big decision.
• Odds are most Canadians have dished out their hard-earned cash to purchase lotter y ti cke t s . Some might have even won a few times. Many others have dabbled in financial markets, gambling on which way stocks or bonds will move — and when.
But few have the chance to actually place bets on those investment decisions — unlike punters in the U.K., for instance, where it’s a ritual to head to a local bookmaker outlet or log on to gambling sites.
Sure, Canadians can wager on American football match- es — even National Hockey League games — using U.K. sites operated by the likes of Ladbrokes, Paddy Power and William Hill. But it’s still not possible to bet on North American markets — leaving private-sector economists to watch movements in financial instruments, as well as interest rates, to predict their future direction.
Will that change any time soon in Canada, or in the United States for that matter? Don’t bet on it.
For now, we will have to continue relying on traditional market watchers, not betting sites, to determine where the winning money might be in North America.
“The Fed is obviously a global talking point,” said Alex Donohue, a spokesman for Ladbrokes in London.
The U.S. central bank will announce its critically awaited interest-rate decision on Thursday, following its twoday policy meeting. According to Bloomberg, the views of market players point to a 28-per-cent possibility the Federal Reserve will start raising its key lending level next week from near-zero to between 0.25 and 0.5 per cent — the first adjustment in seven years. Economists, meanwhile, are nearly split 50-50 on the chance of a rate hike decision during that meeting.
The Fed decision will come one week after the Bank of England held its trendsetting rate at a record low of 0.5 per cent. Analysts now expect the BoE — led by former Bank of Canada governor Mark Carney — to begin raising borrowing costs in early 2016.
Ladbrokes, the betting group, shows only a seven-percent chance of a rate move by the end of 2015, but a 75-percent possibility next year.
Still, even in the wager-crazy U.K., online financial betting “is a relatively knew thing.”
“There would still be more people in the U.K. that bet on the NHL than they would be betting on the Bank of England,” said Donohue, a Ladbrokes spokesman in London.
“For lots of people, it’s still a novelty that you can do this, and it’s a very niche (market). Even though millions of people speculate on (the BoE) everyday for their job in the city, those people then go to Ladbrokes (shops) and have their own personal bets on it,” he said.
“It’s growing, sure enough, but it’s not something that is that big. Political betting is a colossal part of our business. That’s where we hope the financial betting will be in a number of years’ time.”
Online betting on the U.S. and Japanese financial markets, for instance, “is still to come,” Donohue added.
As for the accuracy of bookmakers’ readings, Paul Ashworth, chief North American economist at Capital Economics in Toronto, says “historically, they have not been too bad.
“They were quite good in predicting the recent U.K. election — much better than the actual polls,” said Ashworth, a British expat. “So, there is value in them. And even if they’re not (always) accurate at least you can look at the changes, and that’s helpful, seeing if there’s been any big shifts either way.
“I think it’s valuable stuff. You know, you take information from where you can get it. All information is better than no information.”
Douglas Porter, chief economist at BMO Capital Markets, cautioned that online betting “wouldn’t be quite as liquid as financial markets.
“I think the average person feels more comfortable putting money down on a sporting event that they probably think they know more about, or have an opinion about more so than the financial markets — which are pretty ruthlessly efficient,” Porter said.
“Of course, in markets, people take information wherever they can get it. It’s just another piece of a pretty big jigsaw puzzle.”