Today
Futures are higher this morning as investors lean toward a dovish read of the Fed’s 25 bp cut despite Powell’s mixed signals, with Canadian markets also set to open stronger. The upbeat tone follows a choppy session yesterday when U.S., markets staged a “buy the rumour, sell the news” round trip after the Fed’s 25 bps rate cut on Wednesday. Stocks initially cheered the cut before dropping, then recovering and ending the day relatively flat. Bond yields edged higher and the U.S. dollar firmed as well. The Fed framed the move as a response to rising downside risks to employment even as the jobless rate remains historically low, highlighting its effort to cushion a cooling labor market without reigniting inflation. Despite the BoC’s morning announcement, trading on the TSX largely tracked the S&P 500, rising after 2 p.m. before falling nearly 90 bps and then clawing back to finish the day modestly higher. The price action highlighted how forward-looking markets trade less on the decision itself than on whether it surprises expectations, while also showing how closely Canadian equities remain tied to moves south of the border. On the data front, initial applications for jobless benefits in the U.S. dropped by the most in nearly four years, reversing an unusually large jump in the prior week and consistent with low levels of layoffs in the economy. Continuing claims, a proxy for the number of people receiving benefits, declined to 1.92 million in the previous week.
The Bank of England held rates at 4% in a 7–2 vote, pushing back against expectations for near-term easing amid renewed inflation concerns. Officials stressed that any future cuts would be “gradual and careful” and contingent on further evidence of disinflation, while also slowing the pace of quantitative tightening by trimming gilt sales to £70 billion a year from £100 billion. The cautious stance leaves the BOE out of step with its North American peers, with the BoC and Fed each cutting rates by 25 bps yesterday to cushion slowing growth. Whereas central banks in Canada and the US are leaning into an easing cycle, the BOE is signalling patience and wariness over inflation risks, leaving traders to price in only limited cuts through 2026. Markets took the decision in stride, with gilt yields edging lower and sterling holding modest gains.
Across the Atlantic, cutting season is underway. Mirroring moves on both sides of the border, the Bank of Canada and Federal Reserve each cut rates by 25 basis points yesterday, but their motivations and guidance show some differences. The BoC lowered its policy rate to 2.50%, citing a weak economy marked by a 1.6% GDP contraction in the second quarter, job losses in recent months, and easing inflation at 1.9% headline and just above 3% on core measures. Policymakers signaled they remain data-dependent but markets expect at least one more cut later this year if labor and growth trends stay soft. The Fed, meanwhile, reduced its benchmark to 4.00–4.25%, its first cut in 2025, as hiring slowed and unemployment ticked up while inflation showed signs of moderation. Officials projected two more cuts before year-end, though the pace remains debated inside the committee. In both cases, the message is that central banks are prepared to ease further to cushion growth risks, but with an eye on not undermining progress on inflation.
The European Union approved the start of negotiations with the UK and Canada to give our defense industries access to the bloc’s €150 billion Security Action for Europe (SAFE) fund. The program, created after Russia’s 2022 invasion of Ukraine, is designed to strengthen Europe’s defense by financing joint procurement capabilities such as drones, missiles, and cyber-defense. If agreed, Canadian and British firms would join EU companies in projects supported by the fund, building on recently signed security partnerships. The move comes amid concerns that the U.S. may scale back its commitments under Trump, leaving Europe and its partners to accelerate their own defense investments. Other non-EU states, including Turkey, South Korea, and Albania, have also expressed interest in joining. For now, countries involved may want to keep these defense talks low-key, whilst Trump takes in the pageantry of his second historic state visit hosted by King Charles at Windsor Castle.
Homebuilding slowed in August in the U.S. as high mortgage rates and materials costs weighed on activity. Housing starts fell to 1.31 million, below expectations and down 6% from a year ago, while permits also slipped to 1.31 million. The pullback highlights the drag that tighter financial conditions have placed on housing, one of the more interest-rate-sensitive sectors of the economy. Because housing construction feeds directly into GDP through investment and has knock-on effects on household wealth and consumer spending, weakness in the sector adds to concerns about slowing growth. With the Fed now shifting towards easing, lower borrowing costs could provide some relief to the sector in the months ahead, though builder caution and affordability challenges remain key constraints.
Krispy-gate. Krispy Kreme shares surged as much as 12%, their biggest intraday gain since July, after FBI Director Kash Patel faced questions in Congress over his recent stock trades. Representative Joe Neguse asked Patel before the House Judiciary Committee about two transactions disclosed in July, one in a “national coffee house chain” and another in a semiconductor company. Patel’s earlier filings show he purchased Krispy Kreme, ON Semiconductor, and several ETFs in May, followed by another ETF in July. ON Semiconductor shares also gained, rising as much as 2%. Asked what motivated the trades, Patel said he follows certain industries and thought they would be “a good investment.” Or maybe he just really likes the product. After all, the cops-and-donuts link may be more than just a coincidence.
Diversion: Ready, set, go!
