Rates and rival bids took centre stage
The Bank of Canada (BoC) delivered exactly what the market expected: patience. It held the overnight rate at 2.25%; after two consecutive cuts, Governor Macklem has clearly shifted to a wait and observe stance.
The shift in economic tone since the last announcement supported this pause. The labour market delivered a third major upside surprise, adding more than 180,000 jobs since September and driving the unemployment rate down to 6.5%. Gross domestic product in the third quarter grew by 2.6% annualized, and inflation decelerated to 2.2%. A recession risk that was widely discussed earlier this year has faded. The economy looks resilient, and the BoC’s message reflects that resilience.
Market chatter about rate increases in 2026 is premature. The policy rate of 2.25% is neutral. Inflation expectations are anchored. The risks ahead relate more to tariffs, supply disruptions and USMCA (the United States, Mexico, Canada Agreement on trade) renegotiation than to overheating. The set-up argues for patience, not an increase in rates.
The divergence with U.S. expectations is striking. U.S. markets expect three cuts from the U.S. Federal Reserve (the Fed) next year, while Canadian futures are expecting rate hikes. The narratives are very different. In Canada, the story is simple: the rate is appropriate, and the BoC is in a patience regime.
The Fed delivered its third consecutive rate cut, lowering its funds rate to a 3.5-3.75% range. The vote was split, with meaningful dissent from both sides. The message was that further cuts will be fewer and slower, which is why markets saw this as a hawkish cut (a move to support a soft labour market while showing hesitance over further cuts). Still, equities rallied, with the Dow Jones Index up nearly 400 points, as investors viewed policy as no longer restrictive.
The inflation narrative remains sticky, and the Fed expects to see inflation above 2% until 2028. Even though there was a lack of hard data, because of the recent federal government shutdown, the Fed was still comfortable in announcing a rate cut.
The more interesting development was the resumption of Treasury purchases, with the Fed starting to buy $40 billion in bills and maintaining elevated purchases for several months. It is not quantitative easing (an attempt to inject money into the economy to give it a boost), but it is a step toward easing pressures in funding markets. Given political uncertainty around the next Fed Chair, markets welcomed it.
Paramount Skydance launched a hostile all-cash bid for Warner Bros. Discovery, after losing out to Netflix in an earlier proposal for the studio and streaming assets. Markets judged the cash structure attractive. This raises real competitive questions in streaming, especially with global capital involved and regulatory scrutiny on deck. It also highlights the scarcity value of premium content. Whoever consolidates these assets is positioning for stronger pricing power in 2026.
Looking ahead, retail data will land next week. If consumer spending holds up, it could provide the spark for the infamous Santa Clause Rally that often closes the year. The charts are leaning that way; we’ll know soon.
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