Futures are mixed this morning, as markets look ahead to rate announcements from central banks on both sides of the border on Wednesday, with outcomes likely to diverge. The Bank of Canada, with its overnight rate at 2.25%, is expected to stay on hold after October’s 25 bps cut, supported by a few better-than-expected data points, including recent GDP and employment prints, while in the U.S. markets are almost certain the Fed will deliver another 25 bps cut, a view that has helped support risk assets in recent weeks. Any hawkish tone from Chair Powell could briefly dampen the market’s dovish mood, but that may prove short-lived as Trump is set to nominate his successor next year, with speculation centering on Kevin Hassett, the current Director of the National Economic Council and a long-time advocate of easier monetary policy.
The Fed’s meeting this week is drawing extra attention as policymakers appear divided on whether to deliver the widely expected rate cut. Five of the twelve FOMC voters have expressed skepticism about further easing, while others support another cut, setting up the potential for more dissent than usual. Despite mixed views, markets are pricing in an 84% chance of a 25 bps reduction, helped by steady inflation data, improved consumer sentiment, and historically low jobless claims. The government shutdown has delayed key labour reports, complicating the Fed’s decision and leaving uncertainty around the true state of the job market. Whatever the outcome, investors will focus on Powell’s guidance and the degree of internal dissent, which may reveal how members plan to act ahead of leadership changes next year. Meanwhile, the Bank of Canada is expected to hold rates steady this week after cutting rates in their last meeting.
Markets have entered a period of calm after a volatile few weeks, with key risk gauges like the VIX and MOVE Index near multi-year lows, and investors unwinding tail-risk hedges. Economic reports, including a Fed-preferred inflation gauge and recent labour data, largely met expectations, reinforcing confidence in a rate cut this week, which has fuelled inflows into equity funds, helping the S&P 500 and TSX to continue to climb. However, experts warn that this calm is fragile, with a divided Fed, any sudden spike in layoffs, or stronger-than-expected inflation could quickly trigger volatility.
Consumer sentiment in the U.S. improved in December, rising for the first time in five months, helped by improved views on personal finances and easing inflation expectations following the end of the federal government shutdown. The University of Michigan’s preliminary sentiment index rose to 53.3, with one-year inflation expectations falling to 4.1%, the lowest since January, though still elevated by historical standards. Younger consumers drove much of the improvement, and optimism about future finances climbed to its highest level since February. Despite signs of strength, including solid Black Friday spending, many Americans remain worried about high living costs and a softening job market, with a majority still expecting unemployment to rise in the year ahead.
Despite sentiment improving, U.S. consumer spending was flat in September, signaling that households were already feeling strained by inflation before the government shutdown began. According to delayed data from the Bureau of Economic Analysis, inflation-adjusted spending showed no growth, missing expectations for a slight increase. Meanwhile, the core PCE price index, the Fed’s preferred inflation gauge, rose 0.2% on the month and 2.8% from a year earlier, matching forecasts and underscoring steady but stubborn inflation pressures. The data suggest consumers are becoming more cautious as elevated prices and economic uncertainty weigh on purchasing power.
Bitcoin is on track for its first year of underperformance relative to stocks in more than a decade, with the S&P 500 up over 16% in 2025 while Bitcoin is down about 3%. This divergence, last seen in 2014, is notable given expectations that Trump’s crypto-friendly stance would help digital assets and business interests. After hitting a record above $126,000 earlier this year, Bitcoin has fallen roughly 30% amid fading retail enthusiasm and weakening momentum. While AI-driven equity markets rallied and precious metals approach all-time highs, Bitcoin has lost its traditional role as a high-beta risk-on asset. Experts are pointing to momentum shifting toward gold and silver and say the decline may simply reflect a normal bull-market pullback following Bitcoin’s impressive gains over the past two years.
Private CUSMA meeting. Mark Carney met privately with Donald Trump and Mexican President Claudia Sheinbaum in Washington last week, as North American relations remain strained from escalating U.S. tariffs and looming CUSMA renegotiations. The meeting, held after the FIFA World Cup Draw, showed the leaders are at least trying to appear unified, even as Trump has hinted he may let the trade pact expire during its mandatory 2026 review. While the leaders agreed to continue working on CUSMA, there was no sign that suspended trade talks had resumed, despite growing pressure on Carney to secure relief for Canadian industries hit by steep U.S. tariffs. Perhaps the three leaders were a little too distracted by Wayne Gretzky’s now-viral World Cup country pronunciations to make much headway on trade. Hopefully, the next meeting between the leaders will deliver more progress.
Diversion: You ruined everything!
