Friday 30 October 2026

Today’s data pulls the Bank of Canada’s second hike toward January rather than December, and lowers the likely ceiling for this cycle to 2.75%. We still expect one more quarter point, but not at the December decision unless the October figures surprise.

Why we think so. The Bank raised rates on Wednesday to stop energy costs spreading into other prices, not because growth was strong, so weak growth on its own will not reverse the move. But the Bank also said it would proceed carefully, and the data give it every reason to. Real GDP was essentially unchanged in August, the second flat month in a row and below the 0.2% gain expected. Services slipped 0.1%, wholesale trade fell 1.4%, oil and gas extraction fell 1.2% for a third month, and only nine of 20 sectors grew. The advance estimate has GDP down 0.1% in September, which puts third-quarter growth near 1.2% at an annual rate against the roughly 2% the Bank assumed in its forecast two days ago. Payrolls tell the same story: employment fell 49,600 in August after a 15,700 drop in July, with declines in 10 of 20 sectors. A central bank that hiked for inflation reasons can tolerate one soft month; it is harder to justify a second move into an economy that is flat and shedding jobs.

What the market is pricing. Markets had a December move near a coin flip before this release. Bond yields rose on the day of the hike, with the two-year at 3.41%, the five-year at 3.62% and the ten-year at 3.87%, each up 4 or 5 basis points. Our view is that the coin flip should now lean toward a December hold. Not every signal is weak: average weekly earnings were up 3.7% from a year earlier and job vacancies held at 507,200, which is why we keep a second hike in the outlook rather than calling the cycle over.

What it means. For variable-rate borrowers, the prime rate has probably taken most of the increase it will see this year. Anyone choosing between fixed and variable at an autumn renewal can reasonably price the variable option on the assumption of one more quarter point rather than three, and compare that with the fixed quote; the gap between the two paths is narrower than it looked on Wednesday. Households whose income depends on a cyclical employer, such as construction, restaurants or the federal public service, face a softer job market at the same time as a higher prime rate, which argues for a larger cash buffer. Business owners should read flat wholesale and falling manufacturing as a demand signal for the months ahead.

What would change our mind. A clear rebound in hiring in the October Labour Force Survey in early November, together with October CPI in mid-November showing inflation excluding gasoline above 2.5%, would put a December hike back as the base case. A revision of September GDP to a gain on 30 November would also weaken our view.

What to watch. The October Labour Force Survey on Friday 6 November. October CPI in mid-November, with inflation excluding gasoline the measure that matters. The full September GDP figure on 30 November.

This week is a correction in the price of AI growth, not a verdict that the growth is gone. Into the new year, we think the credit side of these balance sheets, not the revenue line, is the thing to watch.

Why we think so. The demand is real. Amazon Web Services grew 39% to US$46.0 billion, its fastest pace in nearly five years, operating income at AWS rose 55% to US$17.8 billion, and Andy Jassy said the company projects AWS revenue growth “of over 40% both in 2027 and in 2028.” Group operating income was a record US$28.1 billion. The strain is in how the build-out is paid for. Capital spending was US$77.3 billion in the quarter, free cash flow was negative US$33.5 billion, the company still expects about US$220 billion of cash capital spending for 2026, and long-term debt has risen to US$173.1 billion from US$65.6 billion at the end of 2025. Interest expense tripled to US$1.7 billion and, with a US$703 million loss in other income, turned an operating beat into an earnings miss of US$1.89 a share against US$1.96 expected. Alphabet has followed a similar path, with long-term debt nearly tripling. A spending plan funded largely by new debt is a bet that the cost of capital stays manageable, and with the 10-year Treasury near 5%, that bet got more expensive this week.

What the market is pricing. The shares fell nearly 6% after hours, Intel more than 16% on weak guidance, Alphabet fell 13% on Thursday, and before the open S&P 500 futures were down more than 1% and Nasdaq-100 futures about 2.5%. The market is now separating revenue growth from the price paid to fund it. We agree with that distinction but think the reaction treats a financing question as if it were a demand question.

What it means. Several of the largest holdings in a typical Canadian index fund have now shown the same pattern within 48 hours, so this sits inside many RRSPs and TFSAs whether investors follow technology or not. The technology weight in a portfolio has become more sensitive to bond yields, because every borrowed dollar of data centre now costs more. A practical check is how much of a large equity fund’s year-to-date return came from five companies, and what share of the portfolio those names should hold. Holding several funds that own the same few companies is not the diversification it appears to be; a rebalancing rule decided calmly works better than one invented during a sell-off.

What would change our mind. If fourth-quarter guidance of US$240 billion to US$247 billion proves conservative and corporate bond spreads stay tight into the new year, this week will look like an entry point. We would be more worried if a major cloud customer cuts its commitments or if AWS margins, already down to 38.7% from 39.4%, keep sliding.

What to watch. Today’s market open after weak futures. The 10-year Treasury yield around 5% and Friday’s U.S. employment report, which will move it. Signs in the fourth quarter that AWS margins have stabilized.

Oil stays above US$100 a barrel until the U.S. midterm elections on 3 November are past and Washington’s intentions toward Tehran are clearer. Until then, we expect the Bank of Canada to treat each US$10 move in Brent as a rate question.

Why we think so. The price is rising even as flows recover, and the reason is the cost and risk of moving oil, not the amount produced. Gulf crude exports averaged 24.6 million barrels a day in the week to 18 October, above the pre-war average, but by September 40% of them bypassed the Strait of Hormuz by pipeline or ship-to-ship transfer, against 17% before the war. Freight has reached as much as US$40 a barrel, about ten times the usual rate, and October has been the deadliest month for attacks on commercial vessels since the war began, with 32 incidents logged. Inventories keep falling: down 10 million barrels in September, with the global stockpile 509 million barrels below its pre-war level. OPEC’s Gulf producers pumped 15.8 million barrels a day, 75% of their pre-war level, and Pavel Molchanov of Raymond James doubts supply can exceed 85% without a permanent diplomatic solution. None of that changes with a single diplomatic letter.

What the market is pricing. Brent briefly topped US$117 this morning, the highest since April and more than 60% above pre-war levels, while U.S. crude settled at US$102.55 on Thursday. Brent for October 2027 delivery trades above US$90, so the market expects relief but not a return to US$70. As Adi Imsirovic put it, the market is saying there is plenty of prompt oil but “no end to this war in sight.” We agree with that reading, and see the near-term risk as tilted to the upside while freight and attacks keep rising.

What it means. Gasoline was 27.8% higher than a year earlier in September, which is why the Bank of Canada raised rates this week, so oil now reaches borrowers through prime as well as at the pump. Households are better served budgeting winter fuel and heating at today’s prices and comparing with last year’s actual bills. For a business that moves goods, the US$40 freight figure belongs in contract terms, and any agreement running past November is safer with a fuel surcharge clause than a fixed price. For investors, energy has carried the TSX this year while gold did the damage on Thursday; it is worth checking whether energy holdings have grown past their intended weight and whether they act as a hedge against the household’s own fuel bill or as an unintended bet on the war.

What would change our mind. A verified ceasefire that covers the shipping lanes could take Brent below US$100 within weeks. Evidence that global inventories have stopped falling would also weaken our view.

What to watch. The U.S. midterm elections on Tuesday 3 November. Exxon Mobil and Chevron results before today’s open, for producers’ view of the market. The Baker Hughes U.S. rig count this afternoon, after 603.