Business Brief: To hike and to hold

Good morning. In today’s newsletter, we’re tracking price growth in Canada, a changing corporate outlook and why investors are now betting on a rate hike next week.

Up first

In the news

Alberta votes: Albertans have decided to remain in Canada, emphatically rejecting an effort by separatists to pursue a permanent rupture with the country.

Layoffs: Cleveland-Cliffs boss takes a shot at Carney and praises Trump as its conflict with Ottawa escalates.

Energy: Nova Scotia says its winds are ‘world class’ – but it lacks the data to back that up.

Syrup sovereignty: Canada’s official maple syrup reserve is sitting near empty because of a surge in demand.

In focus

The trouble with doing the rate thing

Just when it looked like interest rates might sit still for a little while, a hike is very much back in play. Markets are increasingly betting on a Bank of Canada rate hike later this month, even as new economic data give policymakers plenty of reasons to hesitate. Here’s what has changed, and what it could mean for mortgages and the Canadian dollar.

The big picture: The price of a basket of goods accelerated in September, Statistics Canada reported yesterday. But the acceleration was driven by gasoline prices, which were up about 28 per cent year-over-year. Excluding gas, inflation actually eased to 2.2 per cent from 2.4 per cent. And grocery inflation geared down, to 1.7 per cent from 2.8 per cent.

The measure of our mood: Those aren’t figures that scream “October hike!” But two reports released yesterday by the BoC show why policymakers are caught between a slow economic recovery and heightened inflation risks.

Consumers’ inflation expectations are running high, and their spending plans have fallen from already weak levels. Businesses surveyed after trade talks broke down between Canada and the U.S. reported weaker overall sentiment, lower export expectations and a pause on some investment plans. The percentage of firms who said they plan to pass on cost increases to customers rose to more than half.

The cost of borrowing: What does all of this mean for the BoC’s interest rate decision on Oct. 28? At best, these reports might have solidified its view: You’re damned if you do, damned if you don’t. (We are taking some liberty in paraphrasing here.) Governor Tiff Macklem has spoken recently about the risks of hiking too early, which could weaken an already soft economy – and waiting too long, which could allow inflation to become more entrenched and ultimately require even bigger rate hikes.

Raising expectations: The governor’s most recent comments are largely behind a spike in market bets on a hike. Speaking from the International Monetary Fund meeting in Bangkok this weekend, Macklem said he expects the central bank to revise its inflation forecast higher next week. The conflict in the Middle East shows no sign of ending and global oil prices remain stubbornly high, he said.

Those remarks set money markets racing. Overnight index swaps yesterday suggested a 75-per-cent chance of a quarter-point hike at the next meeting, up from less than 50 per cent just last week. (Those swaps are financial contracts that, among other things, give us a window into what traders are pricing in for the central bank’s next move.)

Getting our houses in order: Variable mortgage rates would likely rise along with the BoC’s trend-setting rate. Fixed-rate borrowers are shielded until renewal, but rising bond yields are putting upward pressure on the rates available today. (Lenders use government bond yields as a starting point when pricing fixed mortgages.)

Yields surged this year as a result of financial market worries that governments and AI hyperscalers are borrowing too much. When bond prices fall as a result of selling by investors, bond yields rise. For anyone planning to retire any time soon, Rob Carrick writes, there’s no time like the present to pay your mortgage off.

“Mortgage rates were low and manageable for much of the past decade and a half, but that’s over,” he says. “Pay your mortgage off before retirement and you can watch the rate drama ahead as a disinterested bystander.”

I’ve never been this interested in having such a disinterest in something.

The loonie’s rise: A hike could also put some wind beneath the loonie, which traded yesterday at its highest level in about a month. A stronger Canadian dollar would make imported goods cheaper, which might help take some pressure off inflation. But it’s less welcome for already-battered exporters, whose goods become pricier abroad.

Charted

For Canadian telecom investors, 2026 has so far been a disappointing year, Irene Galea writes. While the overall S&P/TSX Composite Index has risen by about 11 per cent, the five-company telecom index fell by more than 16 per cent – and the performance of the three largest telcos has been poor.

Quoted

Social unrest is setting Europe’s streets ablaze.

Up next

More files we’re following today

Results: Earnings reports include Netflix, GE Aerospace and SpaceX.

By the numbers: Statscan reports monthly household and mortgage credit data, which could again highlight the dilemma facing the BoC.

Morning update

Global markets retreated while oil prices rose as geopolitical risks rattled sentiment ahead of key results from ​AI bellwether companies.

Wall Street futures were mixed with the Dow pointing higher, while TSX futures were in the red.

Overseas, the pan-European STOXX 600 was down 0.69 per cent in morning trading. Britain’s FTSE 100 slid 0.64 per cent, Germany’s DAX dropped 0.85 per cent and France’s CAC 40 declined 0.81 per cent.

In Asia, Japan’s Nikkei closed 1.3 per cent lower, while Hong Kong’s Hang Seng fell 1.32 per cent.

The Canadian dollar traded at 71.15 U.S. cents.