U.S. Highlights
Treasury yields in the U.S. continued to rise sharply this week, as several Fed speakers provided their opinions. While there was general agreement among FOMC members that there has been progress in inflation, few were willing to rule out the possibility of further policy tightening. The housing market was negatively impacted by previous increases in mortgage rates, but there was a rebound in new home construction in September. Despite higher borrowing costs, retail sales exceeded expectations in September.
Canadian Highlights
Inflation in Canada improved in September, which should give the Bank of Canada confidence in maintaining the policy rate at 5.00% next week. Expectations for further interest rate hikes have decreased, and it is anticipated that the policy rate will remain unchanged until the middle of next year. The Bank of Canada’s surveys showed pessimism about the state of the economy, with consumers reducing spending due to higher interest rates.
U.S. – Treasury Yields Reach Highs
U.S. Treasury yields continued to rise significantly this week, with revised expectations for yields, particularly in the long term. The ongoing political dysfunction in Congress, rising deficits, and geopolitical tensions may be contributing to the increase in the term premium, which has led to higher 10-Year yields. This is the highest level for the 10-Year Treasury yield since before the Global Financial Crisis. Equities declined this week, with the S&P 500 down 1.8%. The real economy has seen mixed trends across sectors based on their sensitivity to interest rates. The housing market weakened further in September, reaching a 13-year low. However, existing home inventory improved, although supply remains low. Higher interest rates have slowed housing price growth. Retail sales growth in September was strong, with the most rate-sensitive segment experiencing its strongest growth in four months.
Canada – Inflation Lowers Expectations for Rate Hikes
September’s inflation data in Canada was weaker than expected, reducing the likelihood of interest rate hikes. This gives the Bank of Canada confidence in maintaining the policy rate at 5.00% next week. Canadian yields experienced volatility this week, influenced more by strong economic data in the U.S. than developments in Canada. Core inflation measures also cooled, providing further encouragement. However, inflation remains above the target range set by the Bank of Canada. Business and consumer sentiment weakened in the third quarter, with businesses expecting slower sales and consumers experiencing higher wage expectations. Retail sales in August declined, indicating a slowdown in consumer spending.
