A softer inflation print cut the odds of a Bank of Canada hike by six points and did nothing for the 10-year yield, which shows the market is no longer pricing the Bank on core inflation.
Statistics Canada reported September CPI at 3.1%, below the 3.2% consensus, with gasoline up 27.8% from a year earlier and inflation excluding gasoline at 2.2%. Implied odds of a hike at the October 28 decision slipped to about 68% from 74%. The Government of Canada 10-year yield still edged up to around 3.90%, and the U.S. 10-year rose about six basis points to 5.14% by midday.
The Front End Took the Good News and the Long End Ignored It
The Economy Desk established this morning that all three core measures eased and that the Bank has room to wait. The close adds what the market made of that room: not much. Governor Macklem said on Saturday that the Bank expects to raise its quarterly inflation forecast significantly this month, and a revision of that size is an energy decision, not a core decision.
Headline CPI has risen from 1.8% in February to 3.1% in September and now sits 85 basis points above the 2.25% overnight rate, with gasoline supplying most of the gap.
Headline inflation of 3.1% compares with 2.2% excluding gasoline, and gasoline prices rose 27.8% from a year earlier. The 3% reference marks the top of the Bank of Canada 1% to 3% control range.
Canadian Bond Proxies Paid for a Rally Canada Does Not Own
The Nasdaq Composite closed up 1.1% at 26,430.89 and the S&P 500 added 0.4% to 7,690.73 on a rebound in chip and AI-linked stocks, while the S&P/TSX Composite moved the other way. At midday it stood at 35,906.83, down 269.72 points, or 0.75%, from Friday close of 36,176.55.
The decline was concentrated where long yields bite. Utilities fell 1.6% and telecommunications 1.4% at midday, industrials fell 1.1%, and RBC, BMO and Scotiabank each lost about 0.5%. Only information technology, up 0.4%, and health care, up 0.3%, were higher. Gold fell US$17.80 to US$4,163.20, and financials and mining names were the main drags.
Friday close of 36,176.55 sat inside a four-week range of daily closes from 35,041.86 to 36,335.61, and the midday reading Monday left the index 0.75% under it.
The index closed at 36,176.55 on October 16 and was down 269.72 points at midday October 19. The October 19 value is an intraday reading, not a closing value.
The Behavioural Desk established this morning that the chip losing streak was a headline, not a signal. The close supplies the part the headline omits. The Canadian sectors that fell today were not the speculative ones: utilities and telecommunications are valued off the long yield, and the long yield rose. A portfolio built on dividend payers and banks ended the morning lower while the index most watched on U.S. screens ended the day higher.
The Oil Relief Is a Waiver, Not a Barrel
Brent fell about 2% to US$107.57 in early trading on a sanctions waiver, while Gulf crude flows through the Strait of Hormuz averaged about 8.5 million barrels a day over the past week, down from more than 20 million the week before, according to Kpler data cited by Reuters.
The Geopolitical Desk established this morning that Hormuz keeps Brent near US$110, and the strait gave no relief today: at least 10 incidents involving commercial ships were reported during the week. The relief came from Washington. An executive order signed Friday waives certain sanctions and tariffs that could allow more Russian fuel exports, and Secretary of State Marco Rubio said the administration will take up to 60 days to assess the economic impact. That window runs past the October 28 decision, so the Bank will set its forecast against an oil price that moved on a policy headline, not on barrels.
For Tuesday morning, the CPI is now known and the variable that matters is whether Gulf flows move back toward 20 million barrels a day. Until they do, a 68% hike probability, a 3.90% ten-year yield and an oil range that DBS expects to hold between US$100 and US$110 into the U.S. midterm elections describe one inflation risk from three angles.
Data note: U.S. index figures are closing values. TSX, sector and gold figures are midday readings, yield figures are intraday readings, and oil is early Monday trading.