The latest estimates from StatCan suggest Q3 GDP managed to rise at only a 2% annual rate, barely reversing the deeply disappointing 1.1% drop in Q2. Unlike the Treasury market, the sell-off extended right out to the 10-year space, with such yields again flirting with their highest level since 2019 at almost 1.70%.Ĭuriously, just as the Bank of Canada has started to breathe fire on its inflation concerns, growth is turning into a proverbial pumpkin.
While backing off a touch from the initial shock move, 2-year GOC yields still vaulted 18 bps on the week (to 1.05% as we speak), doubling in the course of October alone. With the BoC giving that inch, the market promptly took a mile, rapidly building in nearly a 100% chance of a rate hike by January (yes, just a bit more than two months from now). Not only did it call a hard stop to QE, it bluntly offered the possibility of a rate hike as soon as April, and solemnly pledged to keep inflation in check. Instead of gently tamping down aggressive market pricing for 2022 rate hikes, the Bank tossed a few more logs on the raging inferno in this week’s Statement. Probably the most dramatic shift was by the Bank of Canada. And while stocks are mostly thriving on strong earnings, they continue to cast a sideways glance at inflation, and the implications of a central bank shift. Equity markets have mostly managed to sail through these choppy waters, with the S&P 500 reaching a new high, but even some of the mighty, mighty tech giants were blunted in Q3 by supply chain issues. Even as growth figures broadly disappointed in many key economies in Q3 and the early fall, rate hike expectations are mounting as supply-related price pressures simply appear much stickier than policymakers initially expected. And there’s little mystery behind that move-inflation continues to bubble, bubble, and cause all sorts of toil and trouble. Amid this week’s many moving parts, the dominant story was a back-up in short-term bond yields in a wide variety of markets.
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