Global bond yields are higher this morning, with the U.S. 10-year Treasury around 4.15%, after the Bank of Japan raised its policy rate to 0.75%, the highest level in roughly 30 years (see fixed income section below for more details). The yen weakened after the announcement, as guidance on future rate moves was viewed as less hawkish than expected. Equity markets are poised to open higher, with S&P 500, Nasdaq and TSX futures all in positive territory. U.S. stocks gained yesterday on a softer inflation print, though how much weight to put on the numbers is still up for debate. Investors are now looking to economic data, with Canadian retail sales expected to show a recovery in November, with advanced estimates forecasting a rise of 1.2% after a small decline in October, signaling a modest rebound in consumer spending heading into Q4. The increase, the biggest in five months, points to retail sales growing about 0.3% for Q4, assuming no change in December. October’s dip was driven by weakness in food and beverage stores, especially liquor retailers affected by labour disruptions in BC, though vehicle sales provided some support. Overall, the data points to Canada’s economy being more resilient than expected despite trade pressures, slowing population growth, and higher mortgage rates, helped by rising household wealth and earlier interest rate cuts from the BoC.
There will be no early holiday surprises for those hit by Trump’s sectoral tariffs, according to PM Mark Carney, who said Canada is unlikely to reach a standalone deal with the U.S. to lower steel, aluminum or other sector-specific tariffs. Talks are now expected to fold into next year’s review of CUSMA. Carney said Canada remains ready to strike agreements, particularly on forest products, but noted that the U.S. has not reengaged since Trump halted negotiations in October in response to Ontario government ads that used Ronald Reagan clips arguing against tariffs. The upcoming CUSMA review is expected to hinge on several unresolved disputes, including Canada’s dairy controls and retaliatory measures imposed by Canadian provinces the U.S. implemented new tariffs. With three quarters of Canadian exports bound for the U.S., the stakes are high, especially after Trump suggested the pact could be allowed to expire.
Taking a closer look at the latest inflation print, U.S. core inflation slowed significantly in November, rising 2.6% from a year earlier. That was the slowest pace since early 2021, but experts are warning that the data was likely clouded by distortions from the extended government shutdown, which prevented the BLS from collecting most October prices and may have skewed November’s results. With large gaps in the dataset, the BLS relied on carry forward estimates for key categories such as shelter, effectively treating October rents as unchanged and pushing November inflation readings unusually low. Analysts described the release as patchy and full of holes, pointing to anomalies across rents, airfares and apparel, and cautioned that the results may not fully reflect underlying inflation trends. While inflation appears to be easing, many economists noted that the November report may overstate the degree of cooling and that a clearer picture should emerge with December’s CPI.
Catching up. Small- and mid-cap companies just delivered their strongest sales growth in three years, helping push the Russell 2000 toward record highs. Q3 revenue rose 4.5%, well above the 2.9% forecast, led by big gains in financials and tech. The gains were fueled by strong loan demand, AI-related spending, and easier year-over-year comparisons after what can only be described as a few lackluster years. Materials, industrials, and health care also posted solid results, while communications and utilities continued to lag. Momentum is building into next year as expectations for Fed rate cuts, a resilient economy, and increased M&A activity lift sentiment, with analysts projecting that small caps will outperform large caps in earnings growth over the next few quarters.
Holding steady. Canada’s banking regulator kept capital requirements unchanged, noting the largest banks are carrying about $60 billion in excess capital above the minimum. OSFI left the domestic stability buffer at 3.5% for a fifth straight review, saying that systemic risks remain elevated but stable despite trade and economy related uncertainties. The Big Six banks hold an average CET1 ratio of 13.6%, well above the required 11.5%, giving them capacity to support lending. OSFI is also considering easing some risk weights on corporate and real estate loans, though those changes won’t be finalized until late next year. While credit quality is generally steady and the economy has shown moderate resilience, OSFI pointed to high household debt and trade-related risks as ongoing vulnerabilities but said it doesn’t expect to raise the buffer unless conditions deteriorate.
Team real, or team fake? We’re talking about Christmas trees of course. The question of whether a real or artificial Christmas tree is better for the environment is more complicated than it seems. Artificial trees avoid the annual need to cut a new tree, but they are made from carbon-intensive plastics, shipped long distances, cannot be recycled and typically end up in landfills. Their environmental impact only improves if they are used for many years, often twenty or more. Real trees absorb carbon and support local ecosystems as they grow, and most farms replant more trees than they harvest, but the sustainability benefits depend heavily on how far the tree travels to reach the consumer. Real trees are biodegradable and can be composted or repurposed. Ultimately, experts say both options can be reasonable depending on how they are sourced, how long they last, and how they are disposed of, and that the choice should ultimately reflect personal traditions. Happy tree shopping!
Diversion: You can barely tell…
