Today
Equity futures are pointing higher as strong corporate earnings, declining oil prices, and renewed optimism surrounding a potential U.S.-Iran truce helped support investor sentiment. This morning’s moves are helping extend yesterday’s tech-led rally following Anthropic’s IPO filing, which has renewed enthusiasm around AI. Corporate earnings released this morning have been positive, with UPS gaining after exceeding expectations, Coca-Cola raising its full-year revenue outlook, and JetBlue rallying more than 11% on expectations for improved margins despite reporting a larger-than-anticipated loss. Energy markets also provided relief, with WTI falling toward $101 per barrel and Brent declining to $114 as diplomatic discussions involving Iran raised hopes of progress toward ending the conflict, potentially easing inflationary pressures. Investors are now focused on the Fed’s two-day meeting, where interest rates are expected to remain unchanged, although policymakers’ communication will be closely watched for indications of a potential December hike. While Canadians may be looking at a rate hike by the BoC tomorrow with expectations building to an 80% probability as inflation concerns continue to mount.
ANT-icipated IPO. Anthropic’s highly anticipated IPO announced yesterday will become an important milestone for the AI investment cycle, with its valuation potentially hitting $2 tln which could help the company raise more capital than any previous IPO. The company’s financial disclosures highlight both the huge growth and significant risks associated with AI development, with first-half 2026 revenue rising more than 14x to $16.3 bln, alongside nearly $81 bln in net losses and $417 bln in computing and infrastructure commitments extending over the next two decades. Anthropic’s close relationships with Microsoft, Amazon, Alphabet, Nvidia, and Broadcom create exposure across cloud computing, semiconductor manufacturing, and data centre financing, while 48% of its customer sales originate through just three major cloud marketplaces, raising concerns about customer concentration and potential competition from its own distribution partners. Despite reporting $974 mln in Q2 operating income and holding $132 bln in cash and short-term investments, investors remain concerned about slowing revenue growth, unpredictable future demand, rising borrowing costs, and the possibility that infrastructure spending could outpace the industry’s ability to generate sustainable profits. The IPO could revive the stagnant tech IPO market and establish a valuation benchmark for other AI companies, particularly OpenAI, which is expected to pursue its own public listing in 2027. However, a disappointing debut could trigger a reassessment of private AI valuations, undermine confidence, and potentially pressure AI-related equities.
Fed officials have tempered market expectations for an interest-rate hike tomorrow despite stronger-than-expected inflation data, highlighting the continued influence of central bank communication. Following September’s rate increase, investors initially assigned a 70% probability to another hike in October, but cautious remarks from NY Fed President John Williams, Vice Chair Philip Jefferson, and Governor Christopher Waller all helped reduce those expectations. Although the October inflation report briefly pushed the probability of a hike back toward 50%, market volatility, weakness in AI-related equities, and continued signals from policymakers helped drive the implied probability below 10% ahead of this week’s decision. The divergence between economic data and Fed communication has created uncertainty, with some economists arguing that continued inflation justifies further tightening while others believe policymakers are properly assessing broader economic trends and financial conditions before acting. Warsh continues to argue that policy decisions should remain data-dependent rather than predetermined, although investors continue to interpret officials’ statements as guidance, raising the risk of sudden market repricing if the Fed deviates from expectations.
The BoC on the other hand is expected to raise its benchmark interest rate by 25 bps to 2.50% tomorrow, as policymakers look to prevent elevated energy prices from broadening throughout the economy. Market expectations have quickly shifted towards tightening, with futures pricing an 80% probability of a hike and over half of economists surveyed forecasting an increase. Headline inflation reached 3.1% in September, driven primarily by a nearly 28% increase in gasoline prices, although underlying inflation measures have eased toward or below the central bank’s 2% target, leaving some hope that the central bank won’t act just yet. The prospect of higher interest rates comes against a fragile economic backdrop, with Canada losing 68,000 jobs in September, weakening housing and manufacturing activity, slowing wage growth, and additional U.S. tariffs threatening economic momentum. With this in mind, some argue that tightening monetary policy in response to the recent energy shock could suppress consumer spending and increase recession risks in 2027.
EM debt is showing resilience despite rising U.S. Treasury yields, as investors shift capital away from developed-market government bonds amid concerns over growing fiscal deficits and sovereign debt burdens. EM bond funds have seen inflows for 12 consecutive weeks, while returns since the beginning of 2025 have been nearly four times those of U.S. Treasuries, prompting major asset managers to increase their exposure. The shift reflects improving emerging-market fundamentals, including smaller fiscal deficits, stronger credit profiles, reduced reliance on U.S. dollar borrowing, and relatively attractive inflation-adjusted yields following earlier and more aggressive monetary tightening. Investors are also evaluating EM bonds based on their underlying economic fundamentals rather than simply the yield premium they offer over Treasuries, helping explain why credit spreads have remained relatively stable despite the global bond selloff.
Brazilian President Lula’s unexpected victory over Bolsonaro triggered a historic financial market selloff yesterday, as investors reassess the country’s fiscal outlook. The largest U.S.-listed ETF tracking Brazilian equities declined as much as -26%, its steepest intraday decline since inception, while the Brazilian real experienced its largest depreciation in more than two decades. Market concerns revolve around Brazil’s deteriorating public finances, with fiscal deficits approaching 10% of GDP, government debt exceeding 80% of GDP, and elevated interest rates constraining economic activity, household finances and corporate borrowing. Lula’s campaign comeback is due in part to expanded welfare benefits and debt relief measures, reinforcing concerns that his administration will continue prioritizing consumption, social spending, and economic growth over the fiscal consolidation investors had anticipated under Bolsonaro. Investors are now awaiting Lula’s selection of economic leadership, with Vice President Geraldo Alckmin and Piauí Governor Rafael Fonteles emerging as potential candidates viewed relatively favourably by markets, although Lula’s preference for loyal allies could limit the scope of policy changes.
Betting against the home team. Prediction markets are being used by businesses as risk-management tools, allowing companies to hedge against specific events that could negatively impact revenue or operating costs. One recent example is a Los Angeles hospitality group operating 25 bars who placed a $60,000 trade on Kalshi against the Dodgers reaching the World Series, nearly doubling its bet when the team was eliminated and helping offset lost revenue from fewer playoff games. Not a bad consolation prize. The hedging trend coincides with a rise in prediction-market activity, with trading volumes doubling between May and July to more than $58 bln on Kalshi and nearly $22 bln on Polymarket. Economists suggest that prediction markets can provide tailored insurance against specific risks while offering real-time insights to help businesses forecast demand and make operational decisions. However, limited regulatory oversight, potential market manipulation, and uneven market liquidity have raised questions about their reliability.
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