Luke Kawa, financial journalist, Bloomberg (@LJKawa)

"Looking at equity markets, you’d be hard-pressed to find signals that investors expect the good times to end any time soon. But when you mosey over to gauges used to infer how many hikes North American central banks will deliver over the next few years, it’s a different story.

Some context: as long as central bankers are tightening policy to help smooth the business cycle, it’s likely they think their respective economies are growing at a pace that’s above potential and will continue to do so absent the enactment of more restrictive monetary policy.

But right now the implied odds for rate hikes from the Bank of Canada and Federal Reserve suggest investors are worried the end of the cycle might come fairly soon. Forward rates and overnight index swaps for Canada and the U.S. are now in a classic reverse mullet formation: long in the front, short in the back—the opposite of my own hairstyle. Traders think both central banks will deliver about two 25 basis point increases in 2018, but aren’t pricing in a full hike in the two years after that. Granted, the U.S. expansion has gone a long while—but there aren’t many visible imbalances in the real economy that seem overdue for a retraction. In Canada, housing-related vulnerabilities loom large, but betting on an inflection point in that segment has proven to be a money-losing exercise in futility to date.

It’s tough to tell exactly what to make of this market dynamic. Perhaps it’s an unwelcome legacy of the financial crisis and ensuing forward guidance from central banks that investors are only willing to bet on hikes once they can start to see the whites of their eyes. Or maybe 2017 will go down as the year investors completely capitulated and learned to love the new normal—because these market-implied odds suggest that neither central bank will manage to raise policy rates to levels close to their estimates of the long-run nominal neutral rate (roughly three percent).

In the year ahead, watch to see whether investors grow more optimistic or pessimistic on the durability of North American business cycles to help guide asset allocation decisions."