Today
Markets look set for a higher open after both U.S. and Canadian equities declined through the first three sessions of the Labour Day holiday-shortened week. Bonds are drawing plenty of attention this morning, with the U.S. 10-year Treasury yield briefly trading just shy of 5% before easing back to 4.94% at the time of writing. The main event, however, is this morning’s CPI report, the last major economic release before next week’s Fed meeting. Headline inflation rose 3.4% year-over-year and 0.4% month-over-month, coming in line with forecast, while core inflation held at 2.4%. The report will show how much the conflict in the Middle East and resulting rise in oil and gas prices fed through to consumer prices in August. Investors will be parsing the numbers closely for what that could mean for the path of interest rates, especially after the recent move higher in yields. On a more sombre note, today marks 25 years since the September 11 attacks. Here in Canada, the anniversary is a reminder of the remarkable response from the people of Gander, Newfoundland, where 38 diverted planes carrying more than 6,600 passengers and crew landed after U.S. airspace was closed. A town of fewer than 10,000 opened its doors to strangers from around the world, a story of generosity that still resonates 25 years later.
The bond selloff has gathered steam this week, with the U.S. 10-year yield up roughly 18 bps as persistent inflation, oil above $107 a barrel and a still-resilient labour market have investors wondering whether the Fed has more work to do. Futures markets are pricing roughly a 70% chance of a 25 bps hike next week and nearly a 60% chance of another in December, after August producer prices rose 0.4% m/m and 5.4% y/y. The pressure is global, with benchmark bond yields at their highest since 2007, Japan’s 10-year approaching 3% and Australian yields at levels last seen in 2011. Yesterday’s ECB rate hike added to the sense that global monetary policy may have to stay tighter for longer.
Against the odds. The global economy has held up better than many feared, with the IMF still expecting 3% growth this year despite six months of war in the Middle East and a major energy shock. That resilience cuts both ways. AI investment is providing a powerful growth engine just as oil above $100 and higher gas prices are working through food, fertilizer and other costs, making it harder for central banks to declare victory over inflation. Governments have less room to cushion another shock as well, with global public debt nearing 100% of GDP, its highest since World War II. For now, the global economy is bending rather than breaking, but firmer inflation and stretched public finances leave policymakers with considerably less room for error.
Cooler heads. Carney appears content to keep the temperature down rather than answer every U.S. move in kind. Washington’s latest measures include import bans on several Canadian goods, restrictions on Canadian companies selling to the U.S. government and changes to the list of products facing 50% tariffs. Carney acknowledged the measures will be painful for some companies and sectors but called the overall impact relatively modest and signalled no immediate retaliation. The import bans cover about $1 billion of U.S. imports from Canada, much of which was already subject to 50% tariffs, and are not expected to take effect for another three weeks, leaving room for negotiations. Carney’s message was essentially to stay focused on what Canada can control: strengthen the domestic economy, diversify trade and keeping the door open to a deal with Washington.
The Canada pitch. Staying on the topic of strengthening Canada’s economic position, next week Carney will host its first-ever Canada Investment Summit in Toronto, where some of the world’s largest institutional investors will be shown a 167-project pitchbook covering billions of dollars of investment opportunities. These span data centres, advanced manufacturing, LNG, ports, mining, nuclear and other energy projects. Among the larger proposals are a $57 billion modernization of the Port of Churchill, $44 billion of offshore wind and transmission projects in Nova Scotia, a $35 billion west coast oil pipeline and a potential $14.5 billion data-centre campus in Alberta. The government’s goal is to spur $1 trillion of investment over five years, including government spending on defence and infrastructure. There is already some evidence of the appetite Carney hopes to tap. PSP Investments, which helped plan the summit, intends to increase its Canadian investments to $100 billion over the next few years. CEO Deborah Orida says the target reflects a bottom-up assessment of investment opportunities rather than a top-down allocation, with infrastructure opportunities ranging from equity to non-investment-grade debt. She also sees more interest in Canada as a stable jurisdiction and believes some global investors may be underallocated to the country.
A little incentive? Trump’s proposal to send $5,000 payments to American adults if Republicans win the November midterms is facing skepticism over its price tag and potential to worsen inflation. Providing payments to roughly 270 million adults would cost more than $1.3 tln, nearly matching projected federal interest expenses for this year, at a time when the annual deficit is already approaching $1.8 trillion and national debt has surpassed $40 trillion. Adding that much stimulus while inflation and energy prices are already running hot could add to price pressures and make the Fed’s job more difficult. The proposal would also need congressional approval, far from assured given pushback from Democrats and some Republicans.
Where’s Waldo Kawhi? Kawhi Leonard’s expected return to the Raps remains stuck in limbo. The Raptors and Clippers agreed in June on a deal that would send Leonard to Toronto for Brandon Ingram, Gradey Dick, two unprotected first-round picks, two pick swaps and a second-rounder. The Raptors paused the trade while waiting for the NBA’s ruling on the Clippers’ salary-cap circumvention case, but with that decision now made, the holdup appears to be coming from LA. The league hit the Clippers hard, including a $30 million fine, the loss of five first-round picks and suspensions for owner Steve Ballmer and President Lawrence Frank, while Leonard was fined $700,000. Adding another wrinkle, the U.S. Attorney’s Office in Brooklyn has opened a criminal investigation into the alleged salary-cap scheme. Despite the delay, Leonard’s camp and others involved reportedly remain confident the trade will happen. Adding to the intrigue, Leonard is apparently already in Miami with his would-be Raptors teammates on an unofficial team retreat. So technically still a Clipper, but apparently already hanging out with the Raptors.
Diversion: No fear
