Today
All bets are off…sort of. It didn’t take much to change the rate outlook. Investors now see a less than 50% chance of a quarter-point Fed rate hike in October, down from 70% earlier this week, after New York Fed President John Williams suggested the central bank could wait until December before raising rates again. That would leave room for just one more increase this year rather than the two markets had been considering earlier this week. The pullback in rate expectations is taking some pressure off markets, with U.S. and Canadian stock futures are higher this morning and Treasuries rallying after the U.S. 10-year yield hit an intraday high of 5.29% yesterday before easing to 5.20% at the time of writing. Adding to the rate debate this morning, the Fed’s preferred inflation gauge showed headline PCE inflation rising 3.4% y/y, less than expectations but still well above the Fed’s 2% target. Core inflation, which excludes food and energy, rose less than the expected 3.3% at 3.0% y/y, while headline prices increased 0.3% m/m, up from 0.2% the previous month. Canadian bond markets are closed today for the National Day for Truth and Reconciliation, while Canadian stock markets remain open for trading.
The U.S. economy grew stronger than previously reported in Q2, with real GDP revised up to a 2.2% annualized rate from the prior estimate of 1.5%, beating expectations. The improvement was supported by stronger consumer spending, which expanded at a 3.8% annualized pace versus the previous estimate of 3.4% and rebounded from just 0.7% growth in Q1. Inflation remained elevated but was revised slightly lower, with the GDP price index rising 6.1% compared with the earlier 6.4% estimate, while core PCE inflation was revised down to 3.3% from 3.6%. The combination of stronger economic growth and resilient consumption suggests the U.S. economy is absorbing higher borrowing costs better than previously thought. At the same time, inflation remains well above the Fed’s target, putting the central bank in a tough position.
A different story over here. Canada’s economy entered Q3 on a softer footing after strong spring growth, with real GDP unchanged in July and Stats Canada estimating a modest 0.2% expansion in August following 3.3% annualized growth in Q2. July’s weakness came amid declines in manufacturing, mining, oil and gas extraction, and retail trade, which offset solid gains in construction and utilities, while June growth was revised slightly higher to 0.4%. The outlook is becoming more challenging as recent U.S. tariffs and import restrictions begin to impact economic activity, with BoC officials warning that the trade shock could cut Q4 growth in half to below 1%. Strategists also expect a slowdown late this year, with some lowering their 2027 growth forecast to 1.6% from 2%. Meanwhile, higher energy prices increase inflation risks, leaving the BoC facing a difficult combination of weaker growth and persistent price pressures. Markets are currently assigning 50% odds of an October rate hike, making upcoming employment and inflation data more important for determining the interest rate path.
Guard rails off (sort of). Trump rejected new federal AI safety regulations following a White House meeting yesterday with tech executives, arguing that existing laws and industry self-regulation are sufficient enough to address potential risks. Instead, executives from companies including Alphabet, Meta, Nvidia, Anthropic, and OpenAI signed a voluntary “White House Accord on Super Intelligence (SI),” committing to internal model monitoring, dedicated safety teams, outside evaluations, and board-level oversight. The debate has been heating up following recent AI security incidents and OpenAI’s decision to delay a version of its Astra model while strengthening safeguards, while House Speaker Mike Johnson has acknowledged that Congress could eventually need to impose regulatory guardrails. Still, federal legislation appears unlikely in the near term as Congress heads into its pre-midterm recess.
Consumer confidence in the U.S. fell in September, declining to its lowest level since 2014 as households became more concerned about inflation, personal finances, and labour-market conditions. The Conference Board’s Consumer Confidence Index dropped 6.7 points to 81.9, below the 89 forecast, while both current conditions and expectations for the next six months weakened. Rising fuel costs were a concern, with average one-year inflation expectations increasing to 6.1%. For the first time in the survey question’s four-year history, more consumers described their personal finances as bad rather than good. Labour-market perceptions also declined, while separate government data reinforced signs of cooling labour demand, with job openings falling by 256,000 to 7.08 million in August, although hiring ticked higher and layoffs declined slightly. The combination of weakening confidence, elevated inflation expectations, and softer labour demand points to pressure on U.S. consumers, complicating the Fed’s outlook.
The U.S. dollar is on track for its strongest month since June, with the Bloomberg Dollar Spot Index up 1.8% this month as renewed Fed tightening, resilient U.S. economic data, and elevated inflation risks push Treasury yields higher. Markets are now pricing nearly 1% of additional Fed rate increases over the next 12 months following the central bank’s first hike in three years and hawkish comments from policymakers. Higher U.S. yields and widening interest-rate differentials have strengthened the dollar against almost every G-10 currency. Investors are now focused on upcoming U.S. employment and PCE inflation data, which will help determine whether the aggressive tightening currently priced into markets is justified. The USD hasn’t been the only standout this month, with the yen seeing some strength, helped by expectations for further BOJ tightening and the possibility of currency intervention.
Everyone will have a strong opinion on this one. The New York Times published its list of the 100 best TV shows of the 21st century, based on ballots from +500 actors, showrunners, writers, critics, executives, and other TV insiders. Breaking Bad claimed the top spot, followed by The Wire, Mad Men, Succession, and Fleabag, while Game of Thrones, Veep, 30 Rock, Curb Your Enthusiasm, and Atlanta rounded out the top 10 (don’t worry, The Office made it in at #11). The rankings have generated plenty of discussions, mostly over the placement of popular shows like Better Call Saul which came in at #27 and True Detective season 1 at #35, as well as the omission of series like Boardwalk Empire, Mr. Robot, Fargo, and Mindhunter. Other notable absences were The Sopranos and The West Wing, which were technically ineligible because they premiered in 1999, despite most of their episodes taking place in the 21st century. The controversy may be part of the appeal, as the list has sparked discussion about which shows deserve to be considered among TV’s best. Where do your favourites rank? Let the debates begin.
Diversion:
Easier than taking the stairs
