Canada's Growth Cools in 3Q And Is Expected to Weaken Further — Market Talk

1016 ET - Flat Canadian GDP in July and an advance estimate for modest growth in August support the view that the economy shifted into a lower gear in 3Q but continued to grow, Oxford Economics' Michael Davenport says. He expects that new U.S.-Canada tariffs, tighter financial conditions, and a shrinking population should further weaken growth for Canada in late 2026 and early 2027. Excess slack in the economy and a soft growth outlook lessen upside risks to inflation but Davenport notes that if oil prices remain elevated in the near term as expected, it will likely lead the Bank of Canada to lift interest rates in October and December as insurance against a more persistent pickup in underlying inflation. ([email protected]; @RobbMStewart)1014 ET - Canadian GDP by industry was flat on-month in July, which is likely in line with the Bank of Canada's latest forecasts so should have little impact on October's interest rate decision, says Citi's Veronica Clark. The economist sees some risk of further slowing in August relative to Statistics Canada's preliminary estimate of 0.2% growth. But Clark says September jobs and inflation data will likely be soft enough for the central bank to leave interest rates unchanged in October. ([email protected]; @RobbMStewart)1012 ET - Canada's economy may have taken a vacation but momentum returned later in the summer, Desjardins' Royce Mendes says. Offsetting moves in various industries meant unchanged GDP in July, though after upwardly revised growth of 0.4% on-month in June. The early estimate for August points to solid 0.2% growth, Mendes notes. Desjardins' base case forecast anticipated the Bank of Canada will stay on hold until January, but Mendes says that if energy prices remain high then strong summer GDP growth would allow the central bank to raise interest rates earlier even if tariffs remain in place. ([email protected]; @RobbMStewart)1011 ET - Growth in Canada was slowing even before fresh tariffs begin to bite, with unchanged GDP in July and a small projected rise of 0.2% on-month in August, Capital Economics' Bradley Saunders says. That should mean GDP growth cooled to around 1.4% annualized in 3Q, given weakness expected this month amid the hit to real incomes from higher oil prices and the latest U.S. tariffs, the economist says. Growth of 1.4% would be around the latest projection from the Bank of Canada, though Saunders expects activity to slow further in 4Q. ([email protected]; @RobbMStewart)0955 ET - High-quality bonds look appealing due to the high yields they offer, Saxo's Charu Chanana says in a note. Global bonds are paying around 5%, providing attractive income opportunities, Chanana says. "At today's higher yields, the income component can do more of the work. Investors no longer need a large fall in rates for bonds to be useful." ([email protected])0951 ET - Major cryptocurrencies are mostly higher, with bitcoin up 1.2% to $84,479, ethereum rising 2.1% to $2,738, XRP climbing 3.8% to $1.55, and solana advancing 2.1% to $121.29. Altcoins--or tokens other than bitcoin--are seeing more interest and taking up a larger share of daily trading volume, according to data from Glassnode. The firm says that total spot volume in cryptocurrency trading is currently about four times that of bitcoin trading volume, suggesting that more buyers are piling into altcoins. CoinMarketCap's "Altcoin Season Index" sits at 61 out of 100, down from 63 yesterday but still close to the highest level seen in a year. ([email protected])0943 ET - Ether rises to a one-week high, supported by improved risk sentiment and institutional demand. Risk appetite is helped by a pullback in oil prices on signs that Gulf countries are managing to export significant oil volumes out the region. Meanwhile, U.S. spot ether exchange traded funds attracted about $689.8 million in net inflows during the week ended September 25, showing a clear improvement in institutional demand compared with the weaker flow environment seen earlier in the month, Zaye Capital Markets analyst Naeem Aslam says in a note. If ETF demand stays strong and Treasury yields soften, ether could rise further, he says. Ether rises 2% to as high as $2,747, LSEG data show. ([email protected])0938 ET - Canada's economy looks to have found its momentum again. Advance data indicates industry-level GDP expanded 0.2% on-month in August after activity was flat in July, in line with Statistics Canada's earlier flash estimate and a tick below the 0.1% growth economists expected on average. The early look at August shows a recovery in mining and retail trade, offset by further weakness in oil and gas extraction. Unchanged GDP in July snapped three consecutive months of growth for Canada. Even with the recovery in August, it points to softer growth in the current quarter after a strong 3.3% annualized expansion in 2Q. ([email protected]; @RobbMStewart)0936 ET - Yields on U.K. government bonds fall as Prime Minister Andy Burnham delivers a speech at the Labour Party conference in Liverpool. Burnham promised to put Britain on a new economic path. He also said the government would embark on a massive council house building program in an effort to ensure "everyone has a roof over their head". Ten-year gilt yields are down 6.6 basis points to last trade at 5.364%, outperforming eurozone peers, Tradeweb data show. ([email protected])0913 ET - The Treasury selloff eases, keeping yields just below multiyear highs, as oil prices slip and Wall Street braces for a streak of relevant data. The Conference Board Consumer Confidence Index is expected to edge lower, according to a WSJ consensus forecast. Job openings in the JOLTS report are likely to slip to 7.2 million from 7.3 million. Both are due at 10 a.m. ET. September ADP employment report and August PCE inflation are due tomorrow, along with final 2Q GDP estimate. The 10-year yield slips to 5.226% from yesterday's settlement of 5.241%, which was the highest since June 2007. The two-year stays around its 28-month high of 4.922%. ([email protected]; @ptrevisani)0841 ET - A temporary policy aimed at reducing U.K. household energy costs could lower inflationary pressures and could be viewed positively by markets, Deutsche Bank economists Sanjay Raja and Maui Brennan say in a note. Such a move could reduce the need for higher interest rates by the Bank of England, the economists say. Markets price in a 79% chance of a BOE rate increase in November, and fully price in four rate hikes by July 2027, LSEG data show. ([email protected])0839 ET - The U.K. government's announcement of a scheme to support first-time home buyers is likely to boost the housing sector, RBC Capital Markets' Anthony Codling says in a note. The Bank of England money and credit report released on Tuesday showed mortgage approvals decelerated to 54,918 in August, below the consensus forecast of 56,100 by economists in a WSJ poll. The data show that demand stimulus is needed and the government is planning to fix that, Codling says. Detail's on the first-time house buyer scheme will be announced at the budget on October 28. ([email protected])