Category: Market Action

PerpetualDiscounts now yield 5.62%, equivalent to 7.31% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.78% on 2025-10-8, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has remained at increased to 255bp from the 245bp reported October 8.

Powell spoke on quantitative tightening today:

Federal Reserve Chair Jerome Powell on Tuesday suggested the central bank is nearing a point where it will stop reducing the size of its bond holdings, but gave no long-run indication of where interest rates are heading.

Speaking to the National Association for Business Economics conference in Philadelphia, Powell provided a dissertation on where the Fed stands with “quantitative tightening,” or the effort to reduce the more than $6 trillion of securities it holds on its balance sheet.

While he provided no specific date of when the program will cease, he said there are indications the Fed is nearing its goal of “ample” reserves available for banks.

“Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions,” Powell said in prepared remarks. “We may approach that point in coming months, and we are closely monitoring a wide range of indicators to inform this decision.”
…
On a related matter, Powell noted concerns over the Fed continuing to pay interest on bank reserves.

The Fed normally remits interest it earns from its holdings to the Treasury general fund. However, because it had to raise interest rates so quickly to control inflation, it has seen operating losses. Congressional leaders such as Sen. Ted Cruz, R-Texas, have suggested terminating the payments on reserves.

However, Powell said that would be a mistake and would hinder the Fed’s ability to carry out policy.

“While our net interest income has temporarily been negative due to the rapid rise in policy rates to control inflation, this is highly unusual. Our net income will soon turn positive again, as it typically has been throughout our history,” he said. “If our ability to pay interest on reserves and other liabilities were eliminated, the Fed would lose control over rates.”

Jobs, jobs, jobs!

Canada’s economy posted a surprise 60,400 net job gains in September, almost entirely reversing the losses of the previous month, data showed on Friday, but was not enough to bring down its multiyear high unemployment rate.

The jobless rate was at 7.1 per cent, same as the prior month when the rate hit a nine-year high outside of the pandemic years.
…
The employment increase in September was completely led by full-time work and it increased in 10 out of 16 industry groups, Statscan said.
…
The unemployment rate among youth or those in the age bracket of 15 to 24 years edged up to 14.7 per cent in September, the highest rate in 15 years. The youths represent around 14 per cent of the total labour force in Canada.

Also, the proportion of people working in jobs which are unrelated to their qualification as well as immigrants who were overqualified for their jobs scaled up, reflecting tough labour market conditions, the statistics agency said.
…
The average hourly wage of permanent employees – a gauge closely tracked by the Bank of Canada to ascertain inflationary trends – grew by 3.6 per cent in September on a yearly basis to $37.87, same percentage increase as last month.

So, the market reacted:

Here, in detail, is how implied probabilities of future interest rate moves stood in swaps markets after the jobs report. The current overnight rate is 2.50 per cent. While the bank moves in quarter-point increments, credit market implied rates fluctuate more fluidly and are constantly changing. Columns to the right are percentage probabilities of future rate moves.

Pre-announcement

Post-announcement

It is interesting to see that the changes are hawkish in the near term and dovish in the longer term, with the projected terminal rate declining from 2.23% to 2.18%.

Meanwhile, The Stable Genius re-ignited the trade war with China:

President Donald Trump said Friday he would impose a 100% tariff on China “over and above any Tariff they are currently paying” effective November 1 – massively escalating his trade war amid a heated dispute over export controls on rare earths.

In a Truth Social post, Trump wrote that China had “taken an extraordinarily aggressive position on Trade in sending an extremely hostile letter to the World, stating that they were going to, effective November 1st, 2025, impose large scale Export Controls on virtually every product they make, and some not even made by them.”

“This affects ALL Countries, without exception, and was obviously a plan devised by them years ago,” he wrote. “It is absolutely unheard of in International Trade, and a moral disgrace in dealing with other Nations.”

Trump said he would impose the new tariff November 1 “or sooner, depending on any further actions or changes taken by China.”

Earlier in the day, Trump had blasted Chinese leader Xi Jinping on social media over China’s ramped-up efforts to impose export controls on critical rare earths, threatening economic retaliation and saying he no longer sees any reason to meet with Xi during a scheduled visit to the region later this month. At the time, Trump also threatened economic penalties against China, warning, “Dependent on what China says about the hostile ‘order’ that they have just put out, I will be forced, as President of the United States of America, to financially counter their move.”

“For every Element that they have been able to monopolize, we have two,” he added.

… and markets reacted to that:

The S&P 500 sank 2.7% and the S&P/TSX Composite Index dropped 1.4% in their worst day since April. The Dow Jones Industrial lost 1.9%, and the Nasdaq composite fell 3.6%.

Stocks had been heading for a slight gain in the morning, until Trump took to his social media platform and said he’s considering “a massive increase of tariffs” on Chinese imports.
…
The S&P/TSX composite index ended down 414.09 points at 29,850.89, its lowest closing level since September 26. For the week, the index was down 2%.

The TSX has advanced 20.7% since the start of the year and posted a record closing high as recently as Monday.

The high-flying TSX technology sector dropped 4.3%, with shares of e-commerce company Shopify Inc dropping 8%.

The TSX energy sector was down 3.3%. Some of Friday’s strongest action was in the oil market, where the price of a barrel of benchmark U.S. crude sank 4.2% to US$58.90. It fell as a ceasefire between Israel and Hamas came into effect in Gaza. An end to the war could remove worries about disruptions to oil supplies, which had kept crude’s price higher than it otherwise would have been. Trump’s tariff threat could gum up global trade and lead the economy to burn less fuel.
…
In the absence of official data, investors looked to the U.S. Federal Reserve for clues regarding near-term interest rate cuts. Fed Governor Christopher Waller said that while private employment data continues to show labor market weakness, the central bank should act with caution when reducing the Fed funds target rate as it evaluates the economy. St. Louis Fed President Alberto Musalem echoed that sentiment, saying that another rate cut could be warranted as insurance against a weakening labor market. “I believe that we have to tread with caution” before monetary policy becomes too accommodative, he said.

The TXPR Price Index hit a new 52-week high today of 682.28, replacing the old mark of 681.80 set yesterday.

The TXPR Price Index hit a new 52-week high today of 681.80, edging the previous mark of 681.51 set on 2025-9-12.

PerpetualDiscounts now yield 5.64%, equivalent to 7.33% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.86% on 2025-10-8, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed to 245bp from the the 255bp reported October 1.

A new Survey of Consumer Expectations is out:

September Survey: Inflation Expectations Tick Up at Short- and Longer-Term Horizons; Labor Market Expectations Deteriorate

• Median inflation expectations increased at the one-year-ahead horizon to 3.4 percent from 3.2 percent and at the five-year-ahead horizon to 3.0 percent from 2.9 percent. They remained steady at the three-year-ahead horizon at 3.0 percent. The increase in the year-ahead measure was largest for those with at most a high school education and those with household incomes under $50,000.
• Median one-year-ahead earnings growth expectations decreased by 0.1 percentage point (ppt) to 2.4 percent in September, the lowest reading since April 2021.
• Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—increased 2.0 ppts to 41.1 percent.
• The mean perceived probability of losing one’s job in the next twelve months increased by 0.4 ppt to 14.9 percent, above the trailing twelve-month average of 14.1 percent.

I’ve been spending my programming time recently speeding up HIMIPref™ and stumbled across the following interesting comparison of access times for data in various places:

… which is kind of cool. Puts things in perspective! They also have L3 cache, nowadays, that services all the cores on the CPU, not just one; and even, so I am informed, L4 cache!

Which reminds me of a funny story. The nineties was an interesting time to be buying computers, which I was doing for my prior employer, since everything about them was changing at breakneck speed; performance bottlenecks were shifting kaleidoscopically every time you looked. So I read PC Magazine every month and tried to keep up with what was going on; at one point, PC Mag concluded that for computationally intensive work (like we were doing) the most usual bottleneck had become the speed of the L2 cache. If I remember correctly, the speed of the good kind at the time was 15ns.

So next time I ordered a (small) batch of computers and asked my salesman for quotes, I asked what the speed of the L2 cache was. Silence. He obviously had no idea what that was and eventually told me he’d have to call his vendor and get back to me.

We needed the order filled! So I called him up (a few days? a week?) later and asked about the speed of the L2 cache was on the machines he was quoting.

He got mad and snapped “Look, James, it’s fast, OK?”

Shortly afterwards we changed computer vendors.

On 2025-9-19, National Bank of Canada announced:

its intention to redeem, on November 15, 2025 (the “Redemption Date”), all of its outstanding $500,000,000 aggregate principal amount of 4.300% Limited Recourse Capital Notes Series 1 (Non-Viability Contingent Capital (NVCC)) (Subordinated Indebtedness) (the “Series 1 LRCNs”), at a redemption price equal to the principal amount of the Series 1 LRCNs, plus any accrued and unpaid interest up to, but excluding, the Redemption Date. Formal notice of the redemption will be delivered to registered holders of the Series 1 LRCNs in accordance with the terms outlined in the trust indenture for the Series 1 LRCNs.

In connection with the redemption of the Series 1 LRCNs, the Bank will redeem all 500,000 Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares, Series 44 (Non-Viability Contingent Capital (NVCC)) (the “Series 44 Preferred Shares”) that are held by Computershare Trust Company of Canada as trustee of NBC LRCN Limited Recourse Trust.

Since November 15, 2025 is not a business day, amounts due to holders of the Series 1 LRCNs will be paid on the first business day following that date.

The redemption of the Series 44 Preferred Shares and Series 1 LRCNs has been approved by the Office of the Superintendent of Financial Institutions and is part of the Bank’s ongoing management of its regulatory capital.

These issues are discussed on PDF pages 209 and 210 of the 2024 Annual Report – the preferreds were 4.30%+394.3 , which would imply quite a pop in interest paid to the LRCN holders if they had reset!

Thanks to Assiduous Reader DB for bringing this to my attention!

So the saviour of the BLS jobs numbers is being replaced:

The White House has sent paperwork to the Senate to withdraw the nomination of E.J. Antoni as head of the Bureau of Labor Statistics, three sources told CNN.

The withdrawal comes after CNN’s KFile reported earlier this month that Antoni operated a since-deleted Twitter account that featured sexually degrading attacks on Kamala Harris, derogatory remarks about gay people, conspiracy theories, and crude insults aimed at critics of President Donald Trump.
…
Antoni positioned himself as a watchdog for government accountability in media appearances and Heritage Foundation blog posts. But his own digital trail revealed a pattern of incendiary rhetoric that veered frequently into conspiracy theories and misogyny, KFile reported. (In a statement at the time, the White House defended Antoni and did not address whether he still holds the beliefs he espoused on the account in question.)
…
Trump nominated Antoni in August after firing the previous commissioner, Erika McEntarfer, whom he accused without evidence of rigging jobs data. The ouster came after the July jobs report showed weak growth that month, with significant downward revisions to the May and June reports.

I’d call the Trump administration a clown show, but it’s too vulgar and nasty for that.

Lisa Cook has won a small victory:

The Supreme Court agreed Wednesday to decide whether President Donald Trump can temporarily fire Lisa Cook from the Federal Reserve, setting up a blockbuster showdown over the independence of an agency with vast power over the American economy.

Cook will remain on the job until the court holds oral arguments – set for January – and decides what to do with the president’s appeal. That move came despite Trump’s request for Cook to be removed immediately.

In that sense, the order was a win for Cook – and a rare instance in which the court has decided against quickly jettisoning federal officials Trump has fired.

The high court’s brief and unsigned order came months after a majority of justices appeared to draw a line of protection around the Fed, calling the rate-setting agency a “uniquely structured” entity with a “distinct historical tradition” shielding it from presidential politics – even as the court has permitted Trump to fire leaders at other agencies, like the Federal Trade Commission.

PerpetualDiscounts now yield 5.69%, equivalent to 7.40% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.84% on 2025-10-1, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) remains at the 255bp reported September 24.