🧭 This Week in Markets
The Bank of Canada (BoC) appears ready to move lower. With the 5-year Canada Government bond yield hovering around 2.63%, markets are clocking in a ~90% probability of a 25 bp cut at the Wed Oct 29 meeting.
While the consensus still points to one cut then pause, the recent cessation of US/CAN trade negotiations suggests a 50 bp total cut is becoming more plausible—mainly driven by weak consumer sentiment and a resulting pullback in spending, rather than a confirmed worst-case US/CAN trade outcome. But don’t bet the farm on 50 bps just yet…
🇨🇦 BoC: Split Between Growth and Inflation
The BoC finds itself between a rock and a hard place: on one side, GDP growth is stalling (BoC cut); on the other, core inflation at 3.15% remains stubbornly above target, and increasing (BoC hold).
The markets assign a 90% probability of a 0.25% cut on Wednesday, October 29.
Many economists believe only one more cut is likely, but the recently deteriorating trade outlook gives credence to a 0.50% total cut scenario.
To get to 3+ BoC cuts (ie. 0.75%) a major shock would likely be required such as a worst case US trade deal or a banking crisis.
However, interestingly, the BoC is currently shifting its inflation lens from traditional “core” metrics to other broader and more complex measures, effectively moving the goal-posts for rate policy. In other words, the BoC is giving itself more justification and permission to cut rates by changing its key reference data.
There's also a growing case for stagflation, which is a brutal combination of (1) low GDP growth, (2) High inflation and (3) high interest rates that can't drop.
One scenario that could cause stagflation is when the Canadian dollar falls and Canada enacts counter tariffs to prevent ‘unfair market access’ by the US. This would result in ‘import inflation’ for Canadian goods, reduce spending, and cause both economic weakness and inflation, leaving the BoC with no room to move.
🌎 Global Angle: Foreign Yields, Oil & Trade Events Affecting Canada
Yields: U.S. 10-year Treasury yields continue to roam. The recent dip below ~4% reflects growing worries about growth, which typically pulls Canadian yields down.
Oil: A rebound in crude via US/Russian sanctions is boosting Canada’s export outlook, which is providing upward pressure for Canada's output and yields.
Trade: A U.S.–China meeting this week is being analyzed for its ripple effects on Canadian trade and inflation via input costs.
In short: while Canadian yields are seeing downward pressure overall, some global forces are providing support.
🏡 Housing & Mortgage Snapshot
Housing prices in most areas of Canada continue to moderate as new listings outweigh purchases, and economic uncertainty causes some buyers to press pause
5-Year GoC Yield: ~2.63%
Average 5-Year Fixed Mortgage: ~3.99%
Variable Rate Outlook: ~4.65% if one cut, 3.4% if two cuts
Borrowers may not see dramatic rate drops just yet. Unless we get a shock (a trade meltdown, major bank stress), the move downward could be gradual or pause sooner rather than later.
📉 The Week in Play: What We’re Watching
Oct 29: BoC policy decision — watch for language changes, not just the cut.
Trade headlines: USMCA clarity or derailment would trigger yield swings.
US/China and CAN/China trade talks
Stay Tuned…