| Close
Oct 24 | Close
Oct 17 | Weekly
Change | Net Weekly
Change % |
DJIA | 47,207.12 | 46,190.61 | +1,016.51 | +2.20% |
Nasdaq | 23,204.86 | 22,679.97 | +524.89 | +2.31% |
S&P 500 | 6,791.69 | 6,664.01 | +127.68 | +1.92% |
| S&P TSX | 30,353.07 | 30,108.48 | +244.59 | +0.81% |
Source: Globe & Mail
Bank of Canada Preview: Easier Does It
Robert Kavcic
BMO Senior Economist
The Bank of Canada makes its policy announcement on October 29 and will release a refreshed economic outlook in the Monetary Policy Report (MPR). We believe the Bank will cut rates by another 25 bps at this meeting, to 2.25%, and see the policy rate ending the year at 2%—that’s consistent with our long-standing dovish leaning.
For the doves:
Economic growth is limping below potential, with the 1.6% a.r. contraction in Q2 likely to be followed by a sub-1% advance in Q3. The Bank of Canada had assumed 1.0% in the July MPR under the current tariff scenario. The run of data this week showed mixed results on retail and manufacturing, while trade data are about to go dark given the U.S. shutdown. Note that the Bank will go back to publishing a baseline economic outlook in this version of the MPR, and we currently peg Q4 at 1.5%.
The job market has been sluggish despite the strong print for September. Year-to-date employment growth has slowed to just 0.6%, allowing the jobless rate to drift up to 7.1%. The soft conditions were clearly corroborated in the latest Businesses Outlook Survey, with hiring intentions subdued and wage growth expectations cooling further.
Governor Macklem dropped some dovish-leaning comments recently, noting on growth that, “it’s not going to feel very good, and it’s certainly not going to be enough so close the output gap”. That’s notable given the Bank believes the output gap drives the inflation process, and he chose not to lean against market expectations of a cut.
For the hawks:
The September CPI report was on the hot side, with headline inflation rising to 2.4% y/y, while the trim and median core measures held above 3% y/y. Underlying inflation momentum still seems to be around 2.5%, which should satisfy the Bank. But, the latest report did show some stubbornness and landed on the hawkish side. Note that the last edition of the MPR had core inflation at 3.1% y/y for Q3, and that came in-line. Core was expected to cool to 2.4% y/y in 2026 (Q4/Q4) in the current tariff scenario, and Canada has since scaled back most reciprocal tariffs which should help.
Fiscal stimulus is about to roll through the economy and, while we won’t have the federal budget until after the Bank of Canada decision (it will be tabled November 4), we’re assuming the deficit will push well into the $70 billion range. Some measures have already been announced (e.g., personal income and carbon tax cuts), but much on the spending side is still to come, and could ultimately add stimulus of at least a few tenths of a percentage point.
There was optimism over a trade deal ahead of the APEC summit, which would take some serious uncertainty off the economy. But we’ve seen, yet again, how fleeting any optimism there can be—this should probably go on the dovish side.
Key takeaway: The soft economy and job market will likely weigh heavier for policymakers, with an eye on risk management, than some stubbornness in inflation and a potential fiscal boost. We’ve long been on the dovish end of consensus for the Bank of Canada in 2025, and another rate cut at this meeting would be consistent with that view. Look for the Bank to again emphasize that policy will have to be agile in the meetings ahead.
Frank and Mark.
Source: Globe & Mail, BMO Capital Markets, Bank of Canada, Bloomberg.
Canada
The TSX added 0.8% last week, as gains in health care and technology outweighed a pullback in gold/materials. The Canadian data were mixed last week, but the Bank of Canada also looks to have a rate cut teed up for October 29. The soft economy and job market will likely weigh heavier for policymakers, with an eye on risk management, than some stubbornness in inflation and a potential fiscal boost. We’ve long been on the dovish end of consensus for the Bank of Canada in 2025, and another rate cut at this meeting would be consistent with that view. Look for the Bank to again emphasize that policy will have to be agile in the meetings ahead.
The Canadian economy was little changed in August, slowing from a 0.2% expansion in the previous month. Our call is in line with the flat flash estimate previously published by StatCan. Activity was weighed by declines in manufacturing and wholesale volumes, although higher retail spending and home sales offset some of the losses. Meantime, an uptick in hours worked won’t be enough to counter further downside risks in the labour market—especially since hours worked fell again in September. On that note, we’ll be watching the flash estimate for September and Q3 closely, especially since the merchandise trade data will be delayed due to the U.S. government shutdown. We’re calling for an anemic 0.5% a.r. growth rate for the quarter, far below potential but still bouncing back from a challenging Q2.
YTD, the TSX up 22.75%, and the benchmark 10-year yield ended the week to yield 3.06%.
U.S. & Global
Equity markets notched modest gains last week alongside cooler U.S. inflation data and solid earnings results. The S&P 500 rose 1.9%, led by technology and energy, while utilities and consumer staples lagged. With policymakers still operating mostly in the dark given the U.S. government shutdown and its impact on economic data releases, this week’s CPI report (which was pushed out) weighed even heavier than normal—and it didn’t disappoint. Headline inflation rose a tick less than expected to 3.0% y/y, and core inflation cooled a tick to 3.0% y/y. Month-over-month increases were also on the soft side, helped by a sharp slowdown in rents. While underlying inflation is still stubborn—let's call it around 3%—the lack of a flare-up and still-contained tariff passthrough gives the Federal Reserve a green light to cut rates on October 29, and further at subsequent meetings.
YTD, the DJIA is up 10.96%, the NASDAQ is up 20.17%, and the S&P 500 is up 15.47%. The 10-year Treasury yield ended the week to yield 3.95%.
Source: BMO Capital Markets
The Good:
Retail Sales Volumes +1.0% (Aug.)—but StatCan estimates September nominal sales fell 0.7%; Manufacturing Sales +2.8% (Sep.); Household Mortgage Credit +4.8% y/y (Aug.); BOS Indicator +0.12 pts to -2.28 (Q3)—first increase this year.
The Bad:
Consumer Prices +2.4% y/y (Sep.)—hotter than expected; New House Prices -2.8% y/y (Sep.); Industrial Product Prices +5.5% y/y; Raw Materials Prices +8.4% y/y (Sep.); Construction Investment slowed to +0.1% (Aug.).
The Good:
Consumer Prices +0.3% m/m, +3.0% y/y (Sep.) —better than expected; Existing Home Sales +1.5% to 4.1 mln a.r. (Sep.).
The Bad:
U of M Consumer Sentiment revised down to 53.6 (Oct.)—and 5-year inflation expectations revised up to +3.9% y/y.
Source: Canoe.com/Associated Press
An elephant family smashed pumpkins at the Oregon Zoo. But this baby just wanted to play ball
PORTLAND, Ore. (AP) — A baby elephant at the Oregon Zoo had more tricks than treats to show when handlers gave it a small pumpkin to play with during an annual fall event where giant elephants smash half-ton pumpkins.
Weighing just 775 pounds (351.5 kilograms), eight-month-old Asian elephant Tula-Tu is about the heft of one of the giant pumpkins so is too small to smash them. Instead, zoo handlers gave her a small pumpkin to practice with. The little elephant dribbled the gourd around like a soccer ball, a video from the zoo shows.
Her elephant family at the Oregon Zoo enjoyed the large pumpkins on Oct. 16 at the annual “Squishing of the Squash,” a tradition that goes back to 1999 when a farmer donated a pumpkin weighing 828 pounds (376 kilograms). The donated pumpkins have gotten bigger, around 1,000 pounds (450 kilograms) this year, thanks to competitive hobbyists at the Pacific Giant Vegetable Growers Club.
To break open the gargantuan gourds, zookeepers present them to Tula-Tu’s adult relatives like her brother and father who weigh slightly over 10,000 pounds (4,500 kilograms). In a video from the zoo, they appear to delicately place one foot at the top, and gently press down. The pumpkins crack with a loud pop, sending rind and seeds flying.
Past years’ videos have shown midsized, young elephants putting both feet on top of the pumpkins but being too light — or lacking technique — so the giant vegetables don’t burst.
This year the adults elephants smashed the massive pumpkins in front of a cheering crowd of zoo visitors, and then the family of elephants ate the many tons of squash fragments.
Asian elephants like Tula-Tu and her family are considered highly endangered, according to Oregon Zoo officials. There is a fragmented population of around 40,000 to 50,000 such elephants in the wild in places ranging from India to Borneo, a Southeast Asian island straddling Indonesia, Malaysia and Brunei. But there have been successful conservation milestones in recent years, including in Cambodia.