Today
It’s a mixed picture for markets this morning, with U.S. futures pointing lower, led by a -1% decline in Nasdaq futures at the time of writing, while Canadian futures are higher. Earnings from Alphabet and Microsoft are drawing very different reactions. Alphabet shares are down -10% in premarket trading after Q3 results fell short of expectations, putting nearly $400 billion in market value at risk. Google’s core search revenue disappointed, partly due to the popularity of its AI Mode (who doesn’t appreciate that option?), which generates less revenue than its traditional search mode. Microsoft, meanwhile, is trading higher after growth in its cloud business exceeded expectations. On the economic front, investors are digesting this morning’s U.S. inflation and GDP reports, which showed the U.S. economy grew at a stronger-than-expected pace in Q3, with real GDP growing at an annualized rate of 3.4%, accelerating from 2.2% in Q2 and beating forecasts of 3.2%. The expansion marked the fastest pace of economic growth in a year, helped by strong business investment and continued resilience in consumer spending despite higher borrowing costs and inflationary pressures. Personal consumption increased at an annualized rate of 3.8%, above expectations of 3.4%, reinforcing the importance of household spending as a key driver of economic activity. However, the stronger growth figures came alongside renewed inflation concerns, with the Fed’s preferred inflation measure, the PCE price index, rising 0.5% in September, its largest monthly increase in six months, while core PCE inflation increased 0.3% during the month.
End of an era. ECB President Christine Lagarde said that she will step down early next year, nine months before her eight-year term expires, triggering a leadership transition at a time of economic and political uncertainty across Europe. Her departure comes as the ECB faces renewed inflationary pressures, having already raised interest rates in June and September. Spain’s Pablo Hernández de Cos and former Dutch central bank governor Klaas Knot are the leading candidates to succeed her. The leadership transition also has political implications, as Lagarde’s early resignation allows French President Emmanuel Macron to influence the selection process before the 2027 presidential election, raising concerns about potential political interference in the ECB’s independence. Meanwhile, European bond markets remain under pressure from elevated government borrowing, increased defense and infrastructure spending, and concerns surrounding France’s fiscal position, with the French 10-year yield premium over Germany recently reaching its highest level since 2011 and standing near 154 bps following the announcement. The announcement comes ahead of the ECB’s next decision which will come out later this morning, with the central bank widely expected to leave its deposit rate unchanged at 2.5%, balancing elevated inflation against slowing economic growth and mounting instability in European sovereign bond markets. Eurozone inflation is approaching 4%, nearly double the ECB’s 2% target, reflecting higher energy prices and ongoing disruptions to oil and gas supplies. Despite these pressures, economists anticipate one final 25 bp increase in December, bringing the deposit rate to 2.75%, before an extended period of stable policy and potential easing in 2028.
As expected, the BoC raised its benchmark overnight interest rate by 25 bps to 2.5% yesterday, marking its first increase since 2023, as policymakers look to prevent higher energy prices from spreading into broader inflation. BoC Governor Tiff Macklem emphasized that higher oil prices have increased inflation risks, prompting the central bank to revise its 2027 inflation forecast higher to 3.1% from 2.0%, with inflation now expected to return to its 2% target by mid-2028. Despite acknowledging that inflation remains concentrated in energy, economic slack remains, and that U.S. tariffs continue to weigh on activity, policymakers ultimately decided that a precautionary rate increase was necessary. The central bank also upgraded its economic growth projections, forecasting GDP of 1% in 2026 and 2% in 2027 and 2028, reflecting anticipated benefits from federal investment incentives and infrastructure projects. While Macklem indicated that further rate increases may be necessary, he said that decisions would be made meeting by meeting, leaving markets to price in a 50% probability of another hike in December.
What’s in a name? It depends on who you ask. As Canada and the EU look to build closer economic ties, EU member states have dropped a proposal to grant Canada formal “associate membership” amid concerns about the concept’s lack of legal precedent and clearly defined obligations. Officials initially proposed the arrangement, but opposition from countries including Germany prompted officials to adopt more flexible language with the framework expected to be clarified by the 2027 EU-Canada summit. Mark Carney is hosting European leaders in Montreal this week as part of Canada’s strategy to diversify international trade relationships and reduce its economic dependence on the U.S. The summit is expected to build cooperation across several strategic sectors, including energy, defence, critical minerals, AI, tech, and financial services. Both sides are also looking to strengthen supply chains and develop closer partnerships in areas where they share economic and security interests.
China’s stock markets continue to slide as slowing economic growth, limited fiscal stimulus and a reversal in the AI trade weigh on sentiment. The CSI 300 is down -10% ytd and nearly -20% from its June peak, putting it on the doorstep of bear market territory. Hong Kong’s Hang Seng Index has fallen over -12% this year, while its tech sub-index has lost over -30%. Mainland investors have sold HK$20 billion in Hong Kong equities so far this month, putting October on track for the largest monthly outflow since July 2021. Beijing appears to have stepped up state-backed equity purchases to stabilize markets, although weak domestic demand and limited fiscal support continue to weigh on investor confidence. According to China’s National Bureau of Statistics (NBS), total fixed-asset investment (FAI) fell -7.2% in the first nine months of the year, while non-governmental investment declined by a sharper -10.4%. Consumer spending and the property sector also struggled, leaving exports as one of the few bright spots in China’s economy. Despite the resilience in exports, a sustained recovery in Chinese equities will likely require a pickup in domestic demand and more policy support.
Going their separate ways. The Mag Seven have been trading independently of one another, with their average 60-day return correlation falling to its lowest level in more than a decade as investors place more emphasis on company-specific fundamentals and exposure to AI. Mag 7 ETFs have gained around 7% YTD, underperforming the S&P 500’s 12% advance, with Apple and Nvidia the only members outperforming the broader index. Apple has emerged as the group’s strongest performer, while Nvidia remains supported by strong semiconductor demand despite falling more than -13% from its October peak. Meanwhile, investors are now scrutinizing the returns on AI investments at Meta, Microsoft, Alphabet, and Amazon, as higher infrastructure spending raises questions about profitability, free cash flow, and the sustainability of cloud computing growth. Tesla remains the weakest performer, with its investment thesis now dependent on more speculative opportunities in robotics, autonomous driving, and AI rather than its traditional EV business. The divergence among members suggests that investors can no longer rely on broad Mag Seven exposure, making individual stock selection more important.
Waiting to the MAX. Imagine sitting on a $40 million winning lottery ticket for an entire year, with absolutely no idea you’re a multimillionaire. One lucky Canadian narrowly avoided that fate, validating a Lotto Max ticket just hours before it was set to expire at midnight Wednesday. The ticket, purchased in Grey County, Ontario, a year ago, remained unclaimed despite repeated public appeals from the Ontario Lottery and Gaming Corporation (OLG). Following a final publicity push, the ticket was finally validated, with OLG now working to verify ownership before awarding the prize. Had the winner missed the deadline, the $40 million would have returned to the prize pool. Imagine finding that ticket the next morning, only to discover you’d missed out on a fortune by a matter of hours. Which would be worse, knowing you had won $40 million and lost it, or never knowing at all? As for the unclaimed millions, surely OLG could come up with something more creative than simply returning it to the prize pool. If they’re looking for ideas, we’d be happy to offer a few.
Diversion: Life’s not always fair
