Rising oil, mixed tech earnings and higher Canadian inflation
How were Big Tech earnings reports?
The week started strong. The Dow Jones Industrial Average (an index tracking 30 large U.S. companies) closed at a record high on Tuesday due to upbeat earnings reports, and the S&P 500 (the index of the U.S.’s 500 largest companies) strung together three straight gains through Wednesday. SpaceX posted its first quarterly profit as a public company, $4.4 billion on revenue (up 161%), and the stock jumped by almost 8% after the company’s CEO, Elon Musk, called a merger with Tesla a good idea.
Then the tech giants reported on earnings and went opposite ways. Meta beat its revenue expectations and increased the low end of its 2026 capital expenditure range to $135 billion. Tesla beat its earnings expectations, in spite of the company’s auto revenue falling by 3% and operating income dropping by 56%. It then cut its full-year capital expenditure plan to about $20 billion from more than $25 billion. Musk added that any SpaceX deal would need approval from at least half of Tesla's shareholders, which is a high hurdle.
Why are oil prices still rising?
Thursday saw a sharp increase in oil prices. Brent crude oil rose to its highest since May, and West Texas Intermediate oil pushed toward $100 per barrel. Houthi forces struck targets in Saudi Arabia, including an oil field and a civilian airport. Washington ordered some diplomats to leave the Kingdom, and Iranian state television claimed seven tankers caught fire in the Strait of Hormuz. The New York Times reported that the U.S. and Israel may be preparing new strikes on Iran after the U.S. mid-term elections.
However, here’s the strange part; the physical supply of oil is improving. Middle East exports averaged 17.3 million barrels a day in October, above pre-war levels, and flows through the Strait of Hormuz are back to about 82% of normal. Prices are rising anyway, with shipping costs having increased massively. Brent options volume (financial contracts to tie oil in at a specific price) hit a record high on Tuesday, as refiners, airlines and producers rushed to protect themselves against sharp oil price upswings.
How is Canada's inflation looking?
Canada's September Consumer Price Index (CPI, a key indicator of Canadian inflation) rose to 3.1%, back above the top of the Bank of Canada's (BoC) 1% to 3% range. Gasoline did the damage, up 27.8% from a year ago. Excluding gasoline, inflation cooled to 2.2% from 2.4%. The BoC's preferred core measures fell, with CPI-median (which tracks the price change of the component in the 50th percentile) at 1.9% and CPI-trim (which excludes extreme price changes) at 1.8%.
BoC Governor Tiff Macklem has warned that next week's forecasts will show higher inflation, and that it’s worth watching how inflation is changing in the short term. But on the annual numbers, energy is doing nearly all the work of increasing inflation.
The contrast with the U.S. is the story. Last week, American inflation spread beyond the pump. This week, Canadian inflation stayed mostly in it.
What market and economic data will we see next week?
The U.S. Federal Reserve and the Bank of Canada will decide next Wednesday whether to maintain, raise or drop their interest rates, and more of the largest tech companies will report their earnings through the week. It’s going to be a big week.
Listen to the latest podcast from the IG Investment Strategy Team for further insights.
