| | Close
Oct 2 | Close
Sep 25 | Weekly
Change | Net Weekly
Change % |
DJIA | 51,176.96 | 51,828.62 | -651.66 | -1.26% |
Nasdaq | 27,190.86 | 27,068.71 | +122.15 | +0.45% |
S&P 500 | 7,722.72 | 7,743.41 | -20.69 | -0.27% |
| S&P TSX | 35,502.65 | 35,800.89 | -298.24 | -0.83% |
Source: Globe & Mail
Fed Policy: To Hike or Hold Ahead of Halloween
Michael Gregory, CFA
BMO Deputy Chief Economist
When the FOMC raised policy rates by 25 bps on September 16,
there were strong indications that a follow-up action was afoot.
First, the rate hike was expected, but the unanimous
decision to do so was not. Unanimity revealed, once again (recall 2022), that
when inflation is deemed the ‘enemy at the gate’, policymakers—whether
considered doves or hawks—rally around the price stability flag. The ‘dot plot’
showed that 16 of 18 participants pencilled in at least one more quarter-point
move by the end of the year… that is a strong conviction.
Second, there were Chair Warsh’s words. The rate hike was
referred to as “removing a dose of accommodation” which was repeated three
separate times in the presser. This meant that, absent September’s action,
policy was not deemed restrictive enough amid current economic and financial
conditions to ensure that inflation returned to the 2% target in a timely
fashion. The rate hike was said to “support a timelier return”. But in the
nebulous world where state-dependent neutral policy rates reside, 25 bps doesn’t
travel far between the accommodative and restrictive boundaries. With his battle
cry to “deliver price stability”, the anti-forward-guidance Fed head was giving
us just that.
But would the next move be October 28 or December 9 or next
year? Within a week or so, the market was pricing October odds above 70%, with
the pre-Fed-announcement reports still fresh in mind (December odds were for
more than 1½ rate hikes). The key reports showed stronger-than-expected August
increases in payroll jobs, core CPI, and retail sales. But the data
subsequently took a ‘less urgent’ turn, with weakerthan-expected results for
the core PCEPI in August and payroll jobs in September. The market’s October
odds are now around 25% (with December a bit above 100%). Meanwhile, the parade
of Fed speakers has been marching more to the beat of ‘a rate hike, if
necessary, but not necessarily in October’.
For market expectations, what data do, data can undo. For
example, the CPI report for September is due October 15 with retail sales and
the PPI due the next day. Indeed, there are 26 days’ worth of data releases and
Fed speeches ahead of the next policy meeting. We reckon market expectations
are going to be rather bouncy as the month unfolds. And, for the record, we see
the next Fed rate hike coming in December.
Frank and Mark.
Source: Globe & Mail, BMO Capital Markets, Bank of Canada, Bloomberg.
Canada
The TSX was down 0.8% last week, and the split over the past
three months has been similar—although the index has lagged the S&P 500.
Technology and energy were the lone gainers over that period, while REITs,
telcos and utilities lagged well behind.
Canadian merchandise trade was again subject to
tariff-related volatility in August after the mid-July threats resulted in new
50% tariffs in mid-August. There will likely be some front-running supporting
Canadian exports in the first half of the month, before the tide turns to weigh
on the balance in the second half. Beyond tariffs, the fundamentals were
generally supportive of exports as both gold and oil prices stepped up in the
month, while a positive manufacturing flash points to an increase in imports and
other (non-energy, non-metals) exports. On net, we expect the surplus to widen a
touch to $1.0 billion from $0.8 billion in July. Looking ahead, Canadian
counter-tariffs and U.S. import bans on select Canadian goods will weigh on
trade activity starting in September.
YTD, the TSX is up 11.95%, and the benchmark 10-year yield ended the week to yield 3.99%.
U.S. & Global
Equity markets struggled last week alongside the ongoing
backup in bond yields, but have largely held in well. The S&P 500 slipped
0.3%, as banks, health care and materials weighed, offsetting firmness in tech.
With Q3 now closed out, the market has seen some clear winners and laggards
over the past three months, with the AI boom, oil prices and higher interest
rates featuring prominently. Energy has led the pack, up 19% as WTI oil prices
pushed back above $100 at one point in recent weeks. Technology posted a
double-digit gain, bringing the one-year run above 30%, as the AI boom shows no
signs of letting up. At the other end, utilities were the worst performer, down
13% as Treasury yields rose.
Stepping back, big-cap names, in part riding the AI train,
have held up the broad S&P 500 in the face of higher Treasury yields. Note
that mid- and small-cap groups are flirting with correction territory even as
the big-cap S&P 100 has barely budged. The Russell 2000 (small caps) is was
down more than 8% from its mid-August high at one point this week.
This week’s data flow brought two key pieces of information
on U.S. inflation and employment, and both landed on the soft side of
expectations. Core PCE inflation checked in at 3.0% y/y, which is still clearly
on the hot side, but the 3- and 6-month trends (just 2.0% a.r. for the 3-month)
point to softer short-term momentum.
Meantime, nonfarm payrolls rose by a
not-too-hot/not-too-cold 29k in September, leaving shorter and mid-term trends
tucked neatly in the 40-to-60k per month range. Higher labour force
participation lifted the jobless rate a tick, to 4.2%, and wage growth softened.
All in, this combination of data likely affords the Federal Reserve the option
to stand back and not raise rates again in October. Indeed, a chorus of Fed
speakers this week concluded that rates still likely need to get pushed higher,
but not with the urgency of a follow-up move. The market has, accordingly,
seriously pared back pricing for an October rate hike, and equities caught some
support late in the week as a result.
YTD, the DJIA is up 6.48%, the NASDAQ is up 16.99%, and the S&P 500 is up 12.81%. The 10-year Treasury yield ended the week to yield 5.28%.
Source: BMO Capital Markets
The Good:
Auto Sales +3.4% y/y (Sep.).
The Bad:
Monthly Real GDP unch (July)—but August flash estimate +0.2%;
S&P Global Manufacturing PMI -1.5 pts to 51.5 (Sep.).
The Good:
Core PCE Price Index +0.2% m/m, +3.0% y/y (Aug.)—below
expected; Dallas Fed Trimmed Mean PCE Inflation eased to +2.2% y/y (Aug.); Real
Personal Spending +0.6% (Aug.); Real GDP revised up to +2.2% a.r. (Q2 T);
Construction Spending +0.9% (Aug.); Initial Claims -1k to 197k (Sep. 26 week);
S&P Case-Shiller 20-City Home Prices +2.5% y/y; FHFA Home Prices +2.6% y/y
(July); Wholesale Inventories +0.7%; Retail Inventories +0.3% (Aug. A).
The Bad:
Nonfarm Payrolls +29,000 (Sep.)—well-below expected Jobless
Rate +0.1 ppts to 4.2% (Sep.); Average Hourly Earnings slowed to +0.1% (Sep.);
Auto Sales -3.7% to 16.02 mln a.r. (Sep.); ISM Manufacturing PMI -0.1 pts to
54.5 (Sep.); Job Openings -256k to 7,079k (Aug.); Goods Trade Deficit widened
to $132.6 bln (Aug. A); Factory Orders slowed to +0.1% (Aug.); Pre-Tax
Corporate Profits tweaked down to +20.8% y/y (Q2 R)—but still strong; Conference
Board Consumer Confidence Index -6.7 pts to 81.9 (Sep.).
Source: Associated Press
Oxford English Dictionary adds several words long used in
the Caribbean and Bermuda
SAN JUAN, Puerto Rico (AP) — More than a dozen words long
used in Bermuda and across the Caribbean got an official nod on Wednesday from
the Oxford English Dictionary.
First in line is “bimpert,” a Bermudian word of unknown
origin that is used to describe a stupid or foolish person. People on the tiny
island in the north Atlantic often use it in this traditional phrase: “A
bimpert is justah wuffless bye,” which roughly translates to: an idiot is just
a worthless boy.
Another colorful addition is “hornerman,” a word used in the
eastern Caribbean island of Trinidad and Tobago since 1975 to describe an
unfaithful man or a man having a relationship with someone else’s partner.
Leonard Alexander, a grocery store owner in Trinidad,
chuckled at the inclusion of the word “hornerman.” He explained that to “horn”
means being unfaithful, and now the world would know the term for a man who
commits such an act.
“That’s our heritage, that’s what we grew up with,”
Alexander said.
If someone in the Caribbean were to find out about such
infidelities, they might be known “to get on,” which means to have an emotional
outburst or make a scene, or “to cut someone’s tail,” meaning to beat someone.
Depending on the fallout from such infidelities, a woman
might need “vex money,” which refers to “money carried or kept in a safe place
by a woman, for use in an emergency or in any unexpected eventuality.”
Among other dark words that made the list is “jablesse,”
defined as “a malevolent shape-shifting female spirit with one cloven hoof,
which at night is said to assume the form of a beautiful woman to lure men to
their deaths.” It is derived from “diablesse,” the French word for female
demon.
Another supernatural entry is “douen.” It is “typically
depicted as short in stature, with backward-pointing feet, and wearing a large
hat, said to be the spirit of a child who died before it could be baptized, and
believed to lure children into the forest by calling their names,” according to
the dictionary. It is a variation of the Spanish word “duende,” which means
elf.
Avionne George, a 45-year-old maintenance technician in
Trinidad, said formal recognition of such words helps preserve tradition for
the younger generations: “Most of them are ignorant of certain terms from long
ago like ‘douen.’ They don’t know about ‘la jablesse.’”
Several food-related words were included this year:
“shadeesh,” the Bermudian word for chorizo; “sugar cake,” made of grated
coconut boiled with sugar, water and spices; and “peanut punch,” a wildly
popular rich and frothy beverage made with peanuts or peanut butter, milk,
sugar and several spices.
In the Caribbean, one might sit down to have a peanut punch
with one’s “nana” or “nani,” Hindi words that are used to address one’s
maternal grandparents. In Bermuda, one would sit down to partake with a
“hamma,” or friend.
The final Caribbean English words added this year are
“Trinbagonian,” which refers to people from both the islands of Trinidad and
Tobago, and “canboulay,” which refers to Carnival festivities in Trinidad in
the 1800s that celebrated the emancipation of slaves. They stem from a 1700s
harvest festival that the British tried to quash, leading to riots reenacted to
this day to mark the start of Carnival. Canboulay is derived from “burning
cane,” which the dictionary noted was associated with “acts of defiance and
rebellion.”
Sherwin Williams, a construction worker in Trinidad, said
the inclusion of such words in the Oxford English Dictionary would help people
around the world understand their Trinidadian origins. “People recognize us by
our slang,” he said.
There are some 500,000 words and phrases in the Oxford
English Dictionary, which details the history of words, some of which go back
to the 11th century.