Launch Pad

Today

Tech stocks are under pressure globally as investors weigh whether calls from AI leaders to slow the pace of development over safety concerns could cool demand for AI and the infrastructure behind it. Korea’s Kospi fell -3.3%, Taiwan’s TAIEX lost -0.7% and Japan’s Nikkei declined -0.8%, while Nasdaq futures are leading the North American slide this morning. Adding to the risk-off tone, Brent crude hit $108 a barrel as the U.S. war with Iran continued to broaden into a regional conflict, with the latest escalation in Yemen putting another critical energy corridor at risk. Here at home inflation offered few surprises, with headline CPI holding at 3.0% y/y in August, right in line with forecasts. Excluding food and energy, inflation was 2.1%, while median CPI held a 2.0%. Attention now turns to Wednesday’s Fed decision, one of several major central bank meetings on the calendar this week. 

Central banks take centre stage. It’s a busy week for monetary policy, with the Fed, Bank of England and Bank of Japan all in action as higher energy prices and sticky inflation put rate hikes back on the table. The Fed goes first on Wednesday, with markets leaning toward its first hike in three years after a hotter core inflation reading, despite Trump’s continued push for lower rates. The BOE follows Thursday and is expected to hold at 3.75% for a sixth straight meeting. Inflation remains above target and energy prices are adding pressure, but policymakers appear willing to wait for clearer evidence that the shock is feeding into broader prices and wages before tightening again. Japan may be a different story. The BOJ is widely expected to raise rates Friday from 1% to 1.25%, just three months after its last hike, as wage gains, inflation and the weak yen support a faster pace of tightening. The currency angle matters as the yen hit a four-decade low in July before rare joint U.S.-Japan intervention, and has since rallied as investors price in more BOJ tightening and potential repatriation of overseas assets. A hike is largely expected, so what Governor Kazuo Ueda signals about the pace from here may matter more than the move itself. 

Not so fast. Some of AI’s biggest names suggest it may be wise to ease off the accelerator. Anthropic CEO Dario Amodei is calling for a more deliberate pace in developing the most advanced models, with OpenAI’s Sam Altman and xAI’s Musk backing the idea. Recent tests have seen AI agents escape controlled environments, access the open internet and breach real-world targets, while Amodei warns their capabilities could become dramatically more perilous within 6 to 12 months. The idea isn’t to stop development, but to give companies and independent evaluators more time to test and safeguard models before pushing capabilities further. The complication is competition as slowing down only works if rivals do too, including potentially China, and nobody wants to be the only one taking their foot off the gas. The robots aren’t taking over just yet, but their creators seem keen to keep it that way. 

Staying on the topic of AI, Anthropic may be urging the industry to tap the brakes on model development, but apparently not on its IPO. The Claude maker has reportedly chosen Nasdaq for a potential IPO as soon as October and is looking to raise as much as, or more than, SpaceX’s record $86.3 bln June IPO. The numbers help explain the enthusiasm. Anthropic is reportedly on track to generate annualized revenue of over $65 bln, more than seven times its pace at the end of last year. The listing would add more fuel to an already resurgent U.S. IPO market, which has raised $160.6 bln this year, the most since 2021. OpenAI, meanwhile, is taking a different route, with Sam Altman saying it won’t go public this year as the company puts greater emphasis on AI safety. 

It’s a who’s who. Toronto will be the place to be for the global investment crowd this week. Prime Minister Mark Carney hosts the Canada Investment Summit on Tuesday, bringing over 200 investors to the Four Seasons as Canada makes its pitch for capital across ports, pipelines, critical minerals and other major projects. The summit is only part of a packed few days. The Milken Institute brings its Global Dialogues series to Toronto for the first time today, where Royal Bank and TD Bank CEOs Dave McKay and Raymond Chun will speak. The Canadian Venture Capital and Private Equity Association (CVCA) is also hosting a separate forum focused on growth-stage companies and their backers, featuring leaders from HarbourVest, Mubadala, Brookfield Private Equity and Sagard. Canada’s bank CEOs, pension funds, family offices and global investors will also be circulating through dozens of related meetings and events across the city. With TIFF in full swing, Toronto is hosting two very different who’s who this week, one from film and the arts and another from global finance. For Canada, the latter is about turning a high-profile gathering into actual investment commitments. 

Despite the uncertainty facing investors these days, including 10-year Treasury yields near 5%, oil hovering around $100 a barrel, and expectations for another Fed rate hike, strategists remain constructive on U.S. equities. Corporate fundamentals remain the main support today, with S&P 500 companies expected to deliver a third consecutive quarter of +20% earnings growth, while the tech sector’s forward valuation has fallen to roughly 20.5 times earnings from nearly 26 times in June and now sits below its 10-year average. Investors appear to be staying invested, rotating toward tech stocks and growth companies with positive earnings revisions, while also searching for inflation hedges like commodities and gold. Risks remain elevated, however, especially if bond yields continue to climb, with investors indicating that 10-year yields somewhere above 5% could be sufficient to trigger a selloff. For now, strategists see the bull market intact, with strong earnings and continued AI-related growth providing enough support to justify tolerating near-term volatility. 

Finally. We wouldn’t normally write about a player’s first home run at home, but after 289 plate appearances, the Vladdy watch was very real. It took until the Blue Jays’ 75th home game yesterday, and Guerrero’s 71st, for him to finally go deep at Rogers Centre this season. Jays fans have been remarkably patient through six months of baseball, and after waiting along with him, they gave Vladdy a well-earned curtain call after he worked a 3-2 count and sent the next pitch over the wall in the fifth. Even better, it came in the middle of back-to-back-to-back home runs, with George Springer starting it, Vladdy following and Kazuma Okamoto making it three straight. It was just the seventh time in franchise history the Jays have pulled that off, and the first since 2012. Guerrero finished 4-for-5, a triple shy of the cycle, in Toronto’s 8-1 thumping of the Orioles. The Jays are now 75-75 with only 12 games left, just one game behind Cleveland for the American League’s final wild-card spot. It feels a little silly celebrating this in mid-September, but Jays fans have been waiting, and if Vladdy’s bat is finally waking up, better now than never. Let’s go Jays. 

Diversion: A lot harder than it looks 
 

Company news

Oil prices continued to march higher following as attacks forced Saudi Arabia to close a major crude pipeline, with the move disrupting a key alternate route that’s been bypassing the Strait of Hormuz. Saudi Arabia said late on Friday that it had halted the East-West pipeline as a precaution after attacks the previous day. Brent rose nearly 4% to breach $108 before paring gains, while WTI was near $103. There’s been no indication of when operations will resume. The halt of the pipeline that stretches across Saudi Arabia and how that impacts the market going forward will depend on the volumes the kingdom is able to ship from storage and how much supply it can divert back to the Persian Gulf. The latter, however, would require to going back to the Strait of Hormuz, which comes with significant risk. Even prior to the attack, crude benchmarks were already surging, with Brent back above $100 for the first time since July last week, as sliding inventories and rising Chinese buying tightened the crude market. Refiners are paying enormous premiums to secure crude because the cost of selling fuels is soaring. They’re willing to pay record amounts for ships to carry those barrels across the world, with vessel availability also incredibly scarce.   

Gold prices are retreating as continued disruptions to oil supplies in the Middle East are pushing probabilities higher for a series of Federal Reserve rate hikes this year. Bullion fell as much as -1.1% to trade just above $4,300 an ounce. The expectation that higher energy prices push inflation higher has piled pressure on the Fed to make its first rate increase in three years, with traders pricing in an almost 90% chance of it happening. Recent data out last week showed underlying inflation in the U.S. rose in August as the core consumer price index, which excludes food and energy costs, increased 0.3% from a month earlier. Despite the near-term headwinds, many investors are still betting that bullion will grind higher as it rediscovers its traditional value as a portfolio hedge. JPMorgan’s Tang recently said that monetary tightening “would add pressure to parts of the economy that are already struggling with elevated energy costs and risk a widened K-shaped growth trajectory,” increasing recession risk that will be positive for gold.  

Fixed income and economics

The global bond market selloff is continuing today after bond bears pushed the U.S. 10-year benchmark yield to the doorstep of 5% ahead of the Federal Reserve interest-rate decision on Wednesday. The yield on 10-year notes has climbed almost 20 bps last week to trade just below the psychologically-important level, which may attract dip buyers but also risks triggering further selling that could spill over into global markets. At 4.94% on Friday, the yield has reached its most elevated since 2023, and is approaching its highest since 2007. The surge in yields comes as markets struggle with rising inflation concerns in conjunction with a surge in oil prices to north of $100. The moves have spilled over into bond markets worldwide, sending a gauge of global yields to its highest since 2007. Australian benchmark yields reached levels last seen in over a decade on Friday while Japanese equivalents traded close to the key psychological level of 3%. New Zealand bonds fared particularly badly, with two-year yields climbing by 25 basis points. In Europe, which is sensitive to the energy shock given its reliance on imports, Germany’s 10-year yield touched the highest since 2009. Now all eyes will turn to the Federal Reserve with rate markets now pricing in an 87% chance of a 25 bps rate hike, much higher than the 58% it was just a week ago.  

Chart of the day

 

Markets

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Quote of the day
 

No matter how many goals you have achieved, you must set your sights on a higher one.  Jessica Savitch