Today
It’s a mixed picture for futures this morning as investors brace for a busy day of central bank decisions and tech earnings. In Canada, TSX futures are pointing lower ahead of the Bank of Canada’s 9:45 am ET announcement, with economists expecting a 25 bps hike, its first in three years. South of the border, the Fed is widely expected to hold rates steady at 3.75% to 4% following last month’s quarter-point increase, with its decision due at 2 pm. The decision itself may be the easy part. Hotter-than-expected September inflation and weaker job growth have complicated the outlook, while Fed Chair Kevin Warsh has offered little guidance on what comes next. Next week’s midterms add another layer of uncertainty, although the Fed maintains that politics plays no role in its decisions. Meanwhile, Nasdaq futures are higher, pointing to a third consecutive day of gains ahead of earnings from Alphabet and Microsoft after the close. With billions going into AI infrastructure, investors will be looking for evidence that spending is translating into profits, along with clues about future capital expenditures. South Korea’s SK Hynix offered an encouraging start, reporting surging operating profit well ahead of expectations and helping propel the country’s tech-heavy index + 6% higher.
Investors don’t appear too concerned ahead of upcoming market events, with options traders reducing downside protection despite today’s Fed decision, upcoming tech earnings releases, tomorrow’s U.S. inflation data, and November 3 midterm elections. The S&P 500 remains just 1.2% below its record high, while the VIX is near 17.5 and the volatility futures curve returned to contango, suggesting low expectations for near-term market turbulence. Investor positioning also appears concentrated, with nearly $19 billion flowing into tech funds last week, the largest weekly inflow since July, while Bank of America’s fund manager survey indicates global tech exposure is at its highest level since August 2020. Although markets assign less than a 10% probability to an immediate Fed rate increase, unexpectedly hawkish commentary from Kevin Warsh or disappointing hyperscaler earnings could trigger volatility, especially given the relatively limited downside hedging currently in place.
Early Q3 corporate earnings suggest that the U.S. consumer remains relatively resilient despite persistent inflation, elevated interest rates, and rising energy costs, although spending patterns are becoming uneven across industries. Retail sales in the U.S. increased 0.8% in September following a 1.3% gain in August, although higher gas prices contributed to the latest increase, raising questions about the strength of underlying consumption. Discretionary spending on travel remains solid, with Royal Caribbean reporting a 9% increase in Q3 passenger volumes to 2.7 mln and 2027 bookings running at close to 20% above last year’s levels, highlighting continued demand for travel. However, signs of consumer weakness are becoming more apparent in housing-related and durable goods categories, with Whirlpool reporting an 8% decline in North American sales and cutting its annual revenue forecast, while Sherwin-Williams warned that underlying demand remains weak. These contrasting results suggest that consumers continue to prioritize experiences, everyday necessities, and selected services while becoming more cautious toward larger discretionary purchases, especially those that have financing costs.
Business leaders in Canada are becoming more supportive of Mark Carney’s economic agenda, especially his efforts to diversify exports, strengthen economic sovereignty, and encourage domestic investment, although concerns remain around the government’s ability to execute its plans. Carney’s efforts to accelerate major project approvals and broader initiatives to strengthen strategic industries have helped improve relations between Ottawa and corporate Canada following years of tension. A Business Council of Canada survey found that more than 80% of executives support the overall direction of federal economic policy, but nearly all respondents see major barriers for companies. Regulatory complexity seems to be the largest obstacle to economic growth, cited by 59% of executives, followed by tax competitiveness at 19%, highlighting the importance of reducing administrative barriers and improving Canada’s investment environment. Business leaders are also becoming more receptive to targeted government intervention, with close to half expressing more support for industrial policy than in 2019, although a large amount believe measures should be applied selectively. External risks remain front of mind, with the majority of business leaders identifying Canada-U.S. relations as a major challenge over the next five years along with geopolitical instability and rapid technological change.
Paying the price. Rising living costs have become a political vulnerability for Trump and the Republican Party ahead of the November 3 midterm elections. Inflation has outpaced wage growth for six consecutive months, while higher gas prices, tariffs on imported goods, elevated mortgage rates, and rising healthcare costs are placing additional pressure on household finances. This is especially apparent among younger, lower-income, and Latino voters who helped deliver Trump’s 2024 victory. Recent estimates found that higher gas prices could cost the average resident in swing states over $400 extra annually compared with pre-war levels, while retaliatory tariffs have weakened exports in states like Michigan and Iowa. The political consequences are evident, with seven Senate races now considered competitive and Democrats gaining support among traditionally Republican voters. Still, Republican support remains strong among some voters who credit Trump’s One Big Beautiful Bill for tax cuts.
Concerns about the sustainability of the AI investment boom are spreading through credit markets, as the huge financing requirements for data centres, semiconductor infrastructure, and cloud computing strain lenders’ capacity to take on additional debt. Borrowing costs have risen, with at least 18 data-centre financings carrying double-digit yields, while yields on highly rated data-centre bonds have increased from below 5% earlier this year to around 7%, reflecting growing investor caution. Credit default swap spreads have also widened for major tech companies, including Oracle, Nvidia, Meta and SpaceX, highlighting concerns that hyperscalers could assume more financial responsibility for AI infrastructure projects through guarantees and long-term contracts. Investors are becoming more and more selective amid concerns about construction delays, cancellation provisions in contracts, and concentrated exposure to a relatively small group of interconnected AI companies. Some firms have warned that the industry may be overestimating the availability of debt financing required to support the $5.5 tln infrastructure buildout, particularly as banks and insurers approach their exposure limits. Recent weakness surrounding CoreWeave is just the latest example of how capital markets may be becoming less willing to support highly leveraged business models dependent on continuous external funding.
K-shape yacht economy. The global luxury yacht market is now more dependent than ever on American, with U.S. buyers now accounting for 40% of worldwide yacht sales and representing the majority of purchases for vessels exceeding 250 feet, as demand from Europe and the Middle East has softened. Despite the continued expansion of wealth among centimillionaires and billionaires, the industry has moderated from its post-pandemic peak, with global sales of pre-owned yachts over 78 feet declining 1% through September and transaction values falling 5% compared with the same period last year. New yacht orders have also weakened, although demand remains strong at the upper end of the market. This divergence reflects the concentrated distribution of global wealth, with the wealthiest buyers continuing to pursue larger, newer vessels even as activity slows across the rest of the market. The charter market has also moderated from its pandemic-era highs although it does seem to be attracting a growing number of younger American clients, likely as a way to dip their toes in before buying.
Diversion:
Where’d he go?!
