Category: Market Action

The Bank of Canada left the policy rate unchanged today:

The Bank of Canada today held its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%.

Major economies around the world continue to show resilience to US trade protectionism, but uncertainty is still high. In the United States, economic growth is being supported by strong consumption and a surge in AI investment. The US government shutdown caused volatility in quarterly growth and delayed the release of some key economic data. Tariffs are causing some upward pressure on US inflation. In the euro area, economic growth has been stronger than expected, with the services sector showing particular resilience. In China, soft domestic demand, including more weakness in the housing market, is weighing on growth. Global financial conditions, oil prices, and the Canadian dollar are all roughly unchanged since the Bank’s October Monetary Policy Report (MPR).

Canada’s economy grew by a surprisingly strong 2.6% in the third quarter, even as final domestic demand was flat. The increase in GDP largely reflected volatility in trade. The Bank expects final domestic demand will grow in the fourth quarter, but with an anticipated decline in net exports, GDP will likely be weak. Growth is forecast to pick up in 2026, although uncertainty remains high and large swings in trade may continue to cause quarterly volatility.

Canada’s labour market is showing some signs of improvement. Employment has shown solid gains in the past three months and the unemployment rate declined to 6.5% in November. Nevertheless, job markets in trade-sensitive sectors remain weak and economy-wide hiring intentions continue to be subdued.

CPI inflation slowed to 2.2% in October, as gasoline prices fell and food prices rose more slowly. CPI inflation has been close to the 2% target for more than a year, while measures of core inflation remain in the range of 2½% to 3%. The Bank assesses that underlying inflation is still around 2½%. In the near term, CPI inflation is likely to be higher due to the effects of last year’s GST/HST holiday on the prices of some goods and services. Looking through this choppiness, the Bank expects ongoing economic slack to roughly offset cost pressures associated with the reconfiguration of trade, keeping CPI inflation close to the 2% target.

If inflation and economic activity evolve broadly in line with the October projection, Governing Council sees the current policy rate at about the right level to keep inflation close to 2% while helping the economy through this period of structural adjustment. Uncertainty remains elevated. If the outlook changes, we are prepared to respond. The Bank is focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.

… while the FOMC decreased its policy rate by 25bp, also as expected … and with dissents, also as expected:

Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up through September. More recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months.

In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-1/2 to 3‑3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

The Committee judges that reserve balances have declined to ample levels and will initiate purchases of shorter-term Treasury securities as needed to maintain an ample supply of reserves on an ongoing basis.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Philip N. Jefferson; Alberto G. Musalem; and Christopher J. Waller. Voting against this action were Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/2 percentage point at this meeting; and Austan D. Goolsbee and Jeffrey R. Schmid, who preferred no change to the target range for the federal funds rate at this meeting.

The dotplot was interesting, as always:

PerpetualDiscounts now yield 5.65%, equivalent to 7.34% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.96% on 2025-12-03, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed slightly (and perhaps spuriously) to 240bp from the to 245bp reported December 3.

The New York Fed’s Survey of Consumer Expectations came out today:

November Survey: Inflation Expectations Steady at All Horizons; Consumers Are More Pessimistic About Their Financial Situations

• Median inflation expectations remained unchanged at the one-year-ahead horizon at 3.2 percent, holding steady at 3.0 percent at the three- and five-year-ahead horizons.
• Perceptions about households’ current financial situations deteriorated notably, with a larger share of respondents reporting that their households were worse off compared to a year ago and a smaller share reporting they were better off. Expectations about year-ahead financial situations also deteriorated slightly, with a smaller share of respondents reporting that their households are expecting to be better off a year from now.
• Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—improved slightly, decreasing by 0.4 percentage point to 42.1 percent.
• Perceptions of credit access compared to a year ago deteriorated, with a decrease in the net share of respondents who expect that credit will be easier to obtain a year from now.

Jobs, jobs, jobs!

Canadian employment surged in November for the third consecutive month as young people picked up tens of thousands of positions, with the results easily outperforming tepid predictions from economists.

The country’s unemployment rate fell to 6.5 per cent in November from 6.9 per cent in October, Statistics Canada reported Friday in its Labour Force Survey. The decrease was fuelled by growth in part-time jobs, and a corresponding decline in the youth unemployment rate, which reached a four-year peak in September of this year.

Over all, the economy added 54,000 jobs in November, bringing the cumulative increase in jobs for September through November to 181,000.
…
Employment grew by 50,000 among youth aged 15 to 24 but was relatively unchanged for core-aged people (25 to 54) and older workers. The youth unemployment rate dropped to 12.8 per cent, from 14.1 per cent in October, the lowest it has been in nearly 20 months.
…
That said, the country’s job growth over the past three months has been primarily concentrated in part-time work, which has increased at a significantly faster rate (2.7 per cent) than full-time employment (0.5 per cent). Employment in November was also driven by an increase in jobs in health care, social assistance, accommodation and food services – sectors that tend to hire workers on a part-time and contract basis.

The Canadian bond market got crushed: five-year Canadas jumped about 19bp (!!!) to 3.01% and the long bond to 3.86%.

PerpetualDiscounts now yield 5.59%, equivalent to 7.27% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.84% on 2025-12-03, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed sharply to 245bp from the 260bp reported November 26.

Brompton has announced a treasury offering of SBC.PR.A preferreds only; I have updated the post SBC.PR.A: Capital Unit Split.

TXPR closed at 689.10, up 0.55% on the day, doubtless helped by the TRP.PR.G redemption money. Volume today was 1.13-million, near the median of the past 21 trading days.

CPD closed at 13.67, up 0.37% on the day. Volume was 24,480, third-lowest of the past 21 trading days.

ZPR closed at 12.06, up 0.33% on the day. Volume was 28,870, lowest of the past 21 trading days.

Five-year Canada yields were steady at 2.73%.

Equity markets were good but quiet:

U.S. stocks climbed on Friday in thin trading volume during a shortened session after Thanksgiving, driven by gains in retail and a recovery in tech stocks.

Expectations for a Federal Reserve rate cut in December strengthened throughout the week, helping underpin sentiment across equity markets.

The Dow Jones Industrial Average rose 0.61 per cent, to 47,716.42 points, the S&P 500 gained 0.54 per cent, to 6,849.09 points and the Nasdaq Composite added 0.65 per cent, to 23,365.69.

All of the major S&P 500 sectors were up except healthcare, with pharmaceutical Eli Lilly down 2.6 per cent.

Intel helped lead the S&P 500 with a 10.2 per cent gain after a TF International Securities analyst said the company would begin shipping Apple’s lowest-end M processor as early as 2027.

The three main indexes posted weekly gains. The S&P 500 rose 3.73 per cent, the Nasdaq gained 4.91 per cent, and the Dow climbed 3.18 per cent. The S&P and the Dow swung to marginally positive for the month after Friday’s prices settled.

But the Nasdaq closed down 1.51 per cent this month, reflecting growing concerns about stretched AI and tech valuations, with investors taking profits and reducing exposure.