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Canadian inflation rose:

The annual pace of inflation rose to 3.1 per cent in September as war in the Middle East continued to drive up gas prices, Statistics Canada said Monday.

The agency said the acceleration was led by a 27.8-per-cent spike in gasoline prices last month compared with a year earlier, despite the switch to the less expensive winter gas blend.

Excluding gasoline, consumer prices increased 2.2 per cent year-over-year in September.
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Meanwhile, grocery prices increased 1.7 per cent last month, the smallest yearly increase since May 2024, according to Statistics Canada.

Driving the slowdown was a 2.9-per-cent drop in prices for fresh vegetables, while sugar and confectionary items fell 2.7 per cent.

Beef prices, meanwhile, rose at a slower pace in September, up 8.7 per cent compared with an 11 per cent increase in August.

Despite the year-over-year slowdown, the agency said prices for groceries have increased 33 per cent since September 2020.
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During a media roundtable from Thailand on Saturday, Macklem warned that persistently high energy prices were increasing the risk of broader inflation and that the central bank was prepared to raise rates if necessary.

He said the prevailing message from his peers at the International Monetary Fund meetings in Bangkok was that the global economy has been performing better than expected in the face of ongoing wars in Iran and Ukraine, sweeping trade disruptions and higher borrowing costs from rising bond yields.

But Macklem also said that resilience is increasingly “under strain” as shocks like the Middle East conflict persist and drive up energy prices.

Some of those sources of resilience – like releasing global oil reserves – are being depleted, he said.

“You can only release strategic energy, oil reserves so many times, but that has helped contain this energy price shock,” Macklem said.

So it was an active day…:

Money markets are pricing in strong odds that the Bank of Canada will hike its key lending rate next week, in a major rethink of interest rate probabilities ignited mostly by governor Tiff Macklem’s hawkish comments on the weekend. The repricing weighed on Canada’s equity market Monday while sending domestic bond yields sharply higher.

Implied interest rate probabilities in overnight index swaps markets suggest a 75 per cent chance there will be a quarter point rate hike by the bank on Oct. 28, according to Bloomberg data. The market is positioned for an overnight rate of 2.455 per cent at the conclusion of next week’s policy decision, rising to 2.614 per cent by the Dec. 9 decision. The current overnight rate is 2.25 per cent.

That’s a considerable swing from just last week, when markets were pricing in less than 50 per cent odds of a rate hike this coming week, even though they were putting strong odds on a hike by the December meeting.
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Canadian bond yields today are reflecting the reassessment of interest rate move odds. The 2-year yield, sensitive to central bank policy, is up 14 basis points in afternoon trading. That’s four times the move higher today in the equivalent U.S. Treasury, and a large move in one day for bond markets.

The five-year yield – closely watched for its impact on fixed mortgage rates – is up by the same amount, now back to where it started this month after trending lower over the last couple of weeks.
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For its part, the TSX underperformed U.S. indexes, with the interest rate sensitive utilities sector among the worst performers, losing 1.4 per cent. Real estate lost 1.3 per cent.
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The ⁠S&P/TSX Composite ​Index ended down 247.92 points, or 0.7%, at 35,928.63, after posting its highest closing level in more than three weeks on Friday.

The Canada five-year bond closed at 3.68%, up 15bp on the day.

There was a big pop at the close for the TXPR price index due to…:

Rebalancing

Index membership is reviewed quarterly. Rebalancing occurs after the close on the third Friday of January, April, July, and October.

The TXPR price index was up 67bp to 705.57. Volume was 4.27-million, more than double that of the second-highest volume of the past 20 trading days.

CPD was up 7bp to 13.98, on volume of 23,190 (consolidated: 88,060), third-lowest of the past 20 trading days.

ZPR was down 8bp to 12.88 on volume of 147,730 (consolidated: 434,060) well above the median of the past 20 trading days.

US equities got whacked:

Wall Street ended sharply lower on Friday, with CoreWeave, Broadcom and other AI-related technology stocks under renewed pressure, while a jump in oil prices spooked traders heading into the weekend. The TSX ended with a very modest gain, with strength in the heavily weighted energy sector helping to offset losses in tech stocks, which have much less influence on the Canadian benchmark.

The Nasdaq extended losses from earlier ⁠in the ​week, hammered by concerns that debt-laden AI infrastructure companies may not turn profits in time to repay debts, particularly with borrowing costs expected to rise.

Nvidia-backed CoreWeave slumped 12%, bringing its loss over the past five sessions to about 25%. The data center operator’s bonds also sold off sharply this week, pushing yields above 15%.
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Investors on Friday were also watching oil prices jump around 3%. Brent touched US$110 a barrel for the first time since ​May on worries that escalating tensions ‌in the Middle East could further tighten supplies.
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The ⁠S&P 500 declined 1.09% to end the session at 7,659.44 points. The Nasdaq declined 2.15% to 26,140.03 ⁠points, while the Dow Jones Industrial Average dipped 0.34% to 52,002.41 points.
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The S&P/TSX Composite Index closed at 36,176.55, up 39.45 points, or 0.11%.
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Federal Reserve Chair Kevin Warsh on Friday voiced optimism about US economic strength and surprise ⁠about how well global economies have been “hanging in there” during a lingering energy shock and tighter monetary policy to fight inflation.

US wholesale inflation picked up:

US wholesale inflation jumped in September to its highest level in more than four years, marking the second hotter-than-expected inflation reading this week and adding to concerns about the economy just weeks before the midterm elections.

The Producer Price Index rose 1.3% from the month before and 6.3% from the year before, according to Bureau of Labor Statistics data released Thursday morning. It’s a sharp upswing from August when wholesale prices rose 0.5% to an annual rate of 5.6%.
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Energy prices, driven higher by geopolitical conflicts including the war with Iran, drove September’s increase, accounting for 80% of the 2.9% leap in goods prices. That’s the largest-ever monthly increase, according to BLS data that goes back to 2009.

However, businesses are contending with price pressures beyond energy. Core PPI, which strips out food and energy, rose at 0.7%, its fastest rate in five months, lifting the annual rate to 5%, its highest since January 2023.

US inflation news was not encouraging:

The Consumer Price Index Report, released by the Bureau of Labor Statistics on Wednesday, showed that overall prices rose 0.6 percent, the largest monthly increase in five months. Compared with the same time last year, prices were 3.7 percent higher.

The bulk of the increase stemmed directly from energy prices, which have shot higher this year because of the war with Iran.
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Gasoline prices, which in late September rose to nearly $4.50 a gallon, surged 9.1 percent for the month. That accounted for more than half of the overall monthly increase in prices. Gas prices are up 34.2 percent over the past year.

Fuel oil prices, used for heating in many homes in the Northeast, have also shot higher, rising 15.3 percent in September, or 74.2 percent on an annual basis. Higher fuel costs have boosted airfares, which were up 1.2 percent in September, or 22.4 percent over the year.

Food prices were flat for the month, but over the past 12 months have risen 2.5 percent.

“Core” inflation, which excludes volatile energy and food prices, edged higher as well, but by a smaller magnitude. Over the course of September, these prices were up only 0.3 percent. Over the past year, they were up 2.6 percent.
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Average hourly earnings, adjusted for inflation, fell 0.5 percent in September, and were down 0.7 percent from a year earlier. It was the sixth straight month of year-over-year declines in real earnings.

This had a fleeting effect on Treasuries:

US Treasuries rallied sharply on Wednesday afternoon, reversing an earlier selloff spurred by the latest hot inflation report and leaving yields on most maturities lower for the day.

The turnaround highlighted an increasingly vigorous debate in the market, centering on accelerating consumer ⁠price data ​on the one hand and a string of comments from Federal Reserve officials on the other suggesting that the central bank is not in a rush to hike rates further to try to tame stubborn inflation.
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On Wednesday morning, trader bets on the probability of a rate hike at ‌the Fed’s October ​27-28 meeting rose to around 40% from just ‌22% ahead of the data. But by late afternoon, bets for a hike this month fell back to about 33%, according to ​LSEG data.
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The 2-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, rose 0.9 basis points to 4.802% after earlier touching 4.9521%, its highest level since September 29.

The yield on the benchmark US 10-year Treasury note fell 2.7 basis points to 5.19% after hitting 5.3293% in morning trading.

The yield on the 30-year bond fell ⁠4.2 basis points to 5.521%, eying its fourth straight day of declines. Earlier it had ​risen to 5.6277%.

The effect on equities was less fleeting:

Hotter-than-expected U.S. inflation data sent the Nasdaq to a sharply lower close on Wednesday, with worries about more interest rate hikes from the Federal Reserve pummeling shares of Oracle, CoreWeave and other ⁠AI ​stocks sensitive to higher borrowing costs.
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The S&P ⁠500 declined 1.11% to end the session at 7,718.94 points, its biggest one-day drop since July 29.

The Nasdaq declined 1.88% to ​26,692.87 points, its biggest daily drop since July 23. The Dow Jones Industrial Average declined 0.09% to 51,621.48 points.

Canada’s S&P/TSX Composite index also closed in the red, with a loss of 1.11%.
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After hitting a record high last week, the S&P 500 remains up almost 13% in 2026, with most of that gain fueled by AI-related stocks. The median S&P 500 stock has gained 4% in 2026, and over 200 of the index’s components are in negative territory.

PerpetualDiscounts now yield 5.88%, equivalent to 7.64% interest at the standard conversion factor of 1.3x. Long corporates yielded 5.34% on 2026-10-14. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has remained constant at the 230bp reported October 7.