Today
The market rotation continues, with Dow futures pointing higher while Nasdaq futures are lower, led by Qualcomm, which is down nearly -10% in premarket trading. Following the Democrats’ sweep of Congress, investors are reassessing the outlook for Trump’s economic agenda, including support for AI infrastructure and the war in Iran. VP JD Vance yesterday blamed the conflict for the Republicans’ election losses, raising questions about whether the administration will change course. The rotation is also playing out overseas, with South Korea’s tech-heavy Kospi falling -5.3%, while European equities have fared better, with Germany’s DAX and London’s FTSE 100 trading near or at record highs. Canadian futures are also pointing higher ahead of today’s federal budget, which is expected to go beyond fiscal measures to address Canada’s strategic independence, including a new space policy aimed at reducing reliance on other countries. Finance Minister François-Philippe Champagne confirmed yesterday that sovereignty will be a central theme of his second budget. During the customary pre-budget shoe purchase at a Montreal factory, Champagne also pointed to affordability as a priority, an issue that remains front of mind for many Canadians.
Post-midterm glow. Markets rallied Wednesday, a day after the Democrats swept the U.S. midterms, as investors welcomed the political clarity. The Dow surged over 1,500 points, or 3%, its best day since April 2025, while the S&P 500 gained 1.6% and the TSX 2.3%. The rally extended to bonds and gold, with U.S. 10-year Treasury yields falling 7 basis points and gold climbing +3% to above $4000 an ounce in yesterday’s trading session. Investors are betting that a divided Washington will constrain Trump’s spending plans and reduce the risk of further policy shocks, while raising hopes for an end to the Iran war. Brent crude plunged nearly -10% to below $100 a barrel, easing inflation worries. Big Tech also rallied, with Amazon and Microsoft gaining more than 6%, as investors considered whether greater congressional scrutiny could rein in AI spending and ease concerns about its sustainability. Not everyone benefitted, however, with energy, semiconductor and data centre stocks coming under pressure. Historically, the year following midterm elections has been favourable for equities, although the election does little to resolve questions about AI investment returns, the cost of financing its buildout and the U.S. fiscal outlook.
Fall hikes continue. The Bank of England raised its benchmark interest rate by 25 bps to 4% this morning, with eight of nine policymakers supporting the increase and one advocating for a larger 50 bps hike. This came as the central bank warned that continued energy-driven inflation could require further monetary tightening. The BOE revised its inflation outlook, forecasting consumer prices to peak at 4.9% in Q2 of 2027, compared with its previous projection of 3.2%, while one scenario involving renewed escalation of the Iran war could push inflation as high as 6.2% later next year. Rising energy costs are already squeezing British households, with utility bills expected to increase 25% in January, prompting policymakers to act. Governor Andrew Bailey acknowledged that another rate increase may be needed but emphasized that policy is not on a predetermined tightening path, with future decisions depending on inflation, wage growth, business pricing behaviour, and developments in the Middle East. Despite the inflationary shock, the BOE upgraded its economic growth forecasts to 1.6% for 2026 and 1.3% for 2027, reflecting stronger-than-expected economic resilience, while lowering its 2028 projection to 1.2% as elevated energy costs and restrictive monetary policy weigh on longer-term activity.
Canada’s services sector contracted for a fifth consecutive month in October, with the S&P Global Services PMI declining to 48.1 from 48.3, reflecting continued weakness in business activity amid trade uncertainty, elevated inflation, and soft domestic demand. The new business index fell to 48.0 from 48.5, while new export orders saw their steepest decline since November 2025, highlighting the economic impact of the trade tensions between Canada and the U.S., which accounts for 70% of Canadian exports. Inflationary pressures continued to grow, with the input prices index rising to a three-month high of 63.9, driven by higher fuel surcharges, transportation costs, and tariffs, although weak demand limited businesses’ ability to pass these expenses on to customers. The prices charged index remained unchanged at 53.4, suggesting that businesses are facing pressure on profit margins as input costs rise faster than selling prices. Business confidence also deteriorated, with the future activity index falling, indicating that companies remain cautious about the economic outlook despite expectations for some improvement in activity over the coming year.
The trade figures offered a similarly mixed picture. Canada’s trade surplus with all countries widened to $5.35 billion in September, its largest in four years and above expectations of $5 billion. However, the headline figure masks underlying weakness. Exports edged up 0.2%, driven by higher energy and gold shipments to the U.S., while export volumes fell 4%, their steepest decline since January. Excluding energy and metals, exports dropped 5.6%, with declines across 8 of 11 product categories. Canada’s trade surplus with the U.S. widened slightly to $12.3 billion, offset by a $7 billion deficit with the rest of the world. CIBC economist Andrew Grantham cautioned that the sharp decline in export volumes suggests new U.S. tariffs are taking a significant toll on the Canadian economy, adding urgency to upcoming trade negotiations.
Elon Musk’s business empire may face more political and regulatory scrutiny following Tuesday’s U.S. midterms. Despite spending nearly $500 mln supporting Republican candidates, Musk saw Democrats make historic gains in Texas, where Gina Hinojosa defeated three-term Republican Governor Greg Abbott, becoming the state’s first Democratic governor in 36 years. Democrat James Talarico also flipped a Republican-held Senate seat. SpaceX shares fell 5.5% and Tesla dropped 5.1% as investors weighed the implications for Musk’s companies. Texas is particularly important to the AI industry, accounting for roughly one-third of planned U.S. data centre power capacity. Hinojosa has called for a moratorium on new data centre approvals until stronger protections are established for local communities, including safeguards against rising electricity costs and pressure on infrastructure. Greater congressional scrutiny and potential changes to tax incentives could also complicate the economics of AI infrastructure investment.
All I want for Christmas is… something I can unwrap. Americans may dream of vacations and concert tickets, but this holiday season, they’re more likely to find traditional gifts under the tree. A Visa survey found that while more than half of consumers would prefer travel or experiences as gifts, only 15% plan to buy them for others, compared with 27% favouring physical goods. The reason may be less festive. Inflation, higher airfares and economic uncertainty are putting pressure on holiday budgets, with ticket prices for flights up more than 22% from a year ago. Not everyone is cutting back, however. Households earning over $200,000 are the only income group planning to spend more on holiday travel this year, while one-third of those earning less than $100,000 expect to trade down to cheaper brands or retailers. Holiday retail sales are forecast to rise 4.5%, but just 1.1% after inflation, suggesting shoppers will be spending more without necessarily buying more.
Diversion:
Didn’t expect that
