The S&P 500, S&P/TSX and Dow Jones were all marginally higher through a week that could be summed up with a single word: volatile. Among reasons for the heightened volatility are uncertainties as to whether earnings or interest rates will win the ongoing tug-of-war. Markets were also digesting Wednesday’s release of hawkish September minutes that showed Fed Chairman Powell could overtighten, given the downshift in many interest-sensitive areas of the US economy, notably retail and housing.
Meanwhile in Canada, inflation unexpectedly nose-dived in September which should knock-down concerns that pressures are building in an economy near full capacity. The consumer price index recorded an annual pace of 2.2%, the lowest in four months and a drop from 2.8% in August, but still the eighth consecutive month that the overall inflation rate has exceeded the Bank of Canada’s 2.0% target. Despite the drop, market participants are still largely pricing in a rate hike out of the BoC next week, with the implied probability of a 25-basis-point increase to 1.75% sitting at 93.1%.