Friday 9 October 2026

The Bank of Canada holds the overnight rate at 2.25% on 28 October, and after this report a December increase is less likely than markets priced yesterday. Inflation near 3% keeps a cut off the table, but a central bank does not raise rates into two months of job losses.

Why we think so. Employment fell by 68,300 in September after a drop of 41,700 in August, and Reuters calculates a net loss of 41,200 jobs in 2026 against a gain of 211,300 over the same months of 2025. The unemployment rate rose to 6.5% and the participation rate fell to 64.8%, its lowest in 29 years outside the pandemic. A shrinking labour force is a sign of weak demand for workers and of fewer new arrivals, and both slow spending. Wages for permanent employees rose 2.3% from a year earlier, below the 3.0% headline CPI for August, so the average paycheque is losing ground. The core measures of inflation are near 2%; it is oil above US$100 that holds the headline up. Raising rates would do nothing to lower the price of oil and a great deal to deepen job losses.

What the market is pricing. Economists polled by Reuters expected a gain of about 9,200 jobs, so this was a large miss in the wrong direction. Before the release, markets had been slowly adding to bets on a December hike. The 2-year Government of Canada bond yieldBond yield The annual return an investor gets for lending to a government or company through a bond. Yields rise when bond prices fall. Fixed mortgage rates are priced from the 5-year Government of Canada yield. fell about 9.5 basis points and the Canadian dollar slipped to 69.99 US cents, which tells us traders reached the same conclusion we did. Our call agrees with the market’s direction: we see the October hold as close to settled, and the December case as weakened rather than revived.

What it means. The losses landed mostly in educational services and health care and social assistance, which together lost 58,400 positions, plus 12,700 in manufacturing and 48,000 among young workers. That points to immigration limits and public budgets as much as to the 50% US tariffs that took effect on 22 August. For households, two straight months of losses and a longer search for anyone laid off argue for more cash on hand. Count the months of essential spending held in cash or a high-interest savings account and compare it with how long a job search in your field would realistically take; under six months is the signal to top it up first. Check whether disability or critical illness coverage through an employer would survive a layoff, and whether automated RRSP or TFSA contributions could be paused quickly. For borrowers, a variable rate is unlikely to fall soon, but the risk of a further rise has eased.

What would change our mind. A September CPI reading on 19 October above 3.2%, or wage growth accelerating past 3% in the October Labour Force Survey. Either would put inflation back ahead of jobs in the Bank’s thinking and revive the December hike.

What to watch. The University of Michigan consumer sentiment survey today; US CPI for September on Wednesday 14 October; Canada’s September CPI on 19 October; and the Bank of Canada decision on 28 October. Canadian markets are closed on Monday 12 October for Thanksgiving.

A promise not to strike Iran before the 3 November midterms is a ceiling on escalation for four weeks, not a settlement. We expect Brent to hold between US$95 and US$110 into November, with tanker attacks rather than speeches setting the price.

Why we think so. Brent settled about 4.1% higher at US$104.20 on 8 October after a week of attacks on tankers, then slipped to roughly US$103 after President Trump wrote that the United States would not attack Iran before the midterms and was holding “productive discussions” with Tehran. He also said the US naval blockade of Iranian ports stays in “full force”. The physical picture has not changed: nine tankers were reported attacked in or around the Strait of Hormuz over the past week, and flows were about 30% below pre-war levels in the week to Tuesday. The US Treasury added sanctions on 17 vessels carrying Iranian crude and refined products. On top of that, Hurricane Isaias has forced producers to shut in roughly 1.3 million barrels a day in the US Gulf of Mexico, with Emirates NBD putting the share of Gulf output offline at about 63%. A statement lowers the risk of the worst outcome without restoring any supply.

What the market is pricing. Brent is on course for a weekly gain while West Texas Intermediate, trading near US$91, is on course for a weekly loss. That split suggests the market is pricing risk to seaborne supply from the Gulf more heavily than conditions in North America. We agree with that reading, and our range is centred close to where the market sits today. Where we differ is on how much weight to give political statements: in our view the price will respond to shipping data first.

What it means. For Canadian drivers, the pump price follows Brent with a lag of a week or two, so Thursday’s spike will show up before Friday’s relief. Oil above US$100 is the main reason headline inflation is 3.0% while core measures sit near 2%, and why the Bank of Canada has not cut despite a weak job market. The effect is regional: high oil lifts Alberta royalties and energy profits, and the TSX rose 103.52 points to 35,145.38 on Thursday on energy strength, while trucking and home heating oil costs rise for everyone else. Anyone who heats with oil or propane or runs vehicles for a living can fix part of this winter’s fuel at today’s price through a fixed-price delivery contract and leave the rest floating. A monthly budget can also be tested against a 20% move in fuel costs to see when savings would have to give.

What would change our mind. A confirmed reopening of Hormuz under Iran’s seven-day proposal, which would likely take US$10 or more off the price within days. Or a hurricane strike on Gulf Coast refineries severe enough to push diesel, rather than crude, to a new high.

What to watch. Reported attacks on shipping and weekly flows through the Strait; the restart of Gulf of Mexico output after Hurricane Isaias; any further US sanctions or statements from Tehran; US CPI on 14 October; and the 3 November midterms.

Canada’s trade surplus narrows sharply in the September data, and net exports swing from a tailwind to a drag on fourth-quarter growth. That is one more reason the Bank of Canada holds rather than hikes.

Why we think so. The merchandise trade surplus widened to $4.2 billion in August from $787 million in July, the largest in more than four years. Exports rose 2.5%, almost entirely in volume, and exports to the United States jumped 8.1%, nearly doubling the bilateral surplus to $11.2 billion, which Statistics Canada called the largest one-month swing in the US balance on record. TD Economics’ Marc Ercolao attributes much of the gain to US buyers front-running the Section 338 tariffs that took effect on 22 August, and expects a payback from September onward as the tariffs, Canada’s countermeasures and new US import bans take hold. The logic is simple: stock built up ahead of a tariff is stock not bought after it. Electronic and electrical equipment exports rose 11.0%, a category Statistics Canada noted is among those targeted, which is what front-running looks like in the data. Exports to the rest of the world fell 8.5%, so the gain was not broad demand for Canadian goods.

What the market is pricing. Deloitte’s fall outlook, published 29 September, already cut 2027 growth to 1.6% on the same reasoning and pencils in a Bank of Canada hold at 2.25% for the rest of this year. Our call is consistent with that consensus. Where we would add emphasis is on the speed of the turn: the first signs are already visible, with manufacturing employment down 12,700 in this morning’s jobs report.

What it means. For third-quarter GDP, August’s strength helps. For the autumn, it is weakness pulled forward. A business owner selling into the US should ask whether orders in September and October have thinned compared with the summer, and whether pricing has been adjusted for the duty. Running the next six months of cash flow on the assumption that US orders fall 10% to 15% from the summer pace, and checking whether the operating line and receivables terms still work, is a sensible test. For employees in tariff-exposed industries, front-loaded orders followed by a lull is the pattern that produces temporary layoffs in the fourth quarter. Owners whose personal wealth sits mostly inside the company should also ask whether enough has been moved outside the business, into personal savings or an RRSP, to carry a household through a slow year.

What would change our mind. September exports to the US holding within 3% of August. That would mean US importers are absorbing the tariffs rather than cutting volumes, and the drag on growth would be smaller than we expect.

What to watch. The September trade data, the first to show the tariffs in force, on 4 November; manufacturing employment in the coming Labour Force Surveys; and the Bank of Canada decision on 28 October.