Daily Points

ON DECK FOR TUESDAY, OCTOBER 20th

KEY POINTS:

• Higher oil prices strengthen BoC hike pricing, CAD gains
• The polls correctly called Alberta’s foolish separation vote
• BoC expectations––hikes at 3 of four next meetings…
• …as Scotiabank Economics led everyone in consensus and market pricing
• Rise in long-term inflation expectations will spook the BoC
• UK job market readings bolster BoE hike pricing
• Light US data on tap

Oil is up sharply this morning, led by Brent’s 5% rise and a smaller US$1-2/barrel increase in WTI. Some headlines about Iran’s VP saying they have “no choice” but to assert control over the Strait of Hormuz and a commitment from the UK to be drawn further into defending the Saudis against attacks by the Houthis may be contributing factors.

The result is harming risk appetite. Stocks are broadly lower across NA futures and European cash markets after Asian benchmarks sold off overnight. French bonds remain under pressure and short-dated UK gilt yields are up post jobs (see below), but otherwise there is little movement across N.A. rates. Perceived petro currencies like CAD and NOK are outperforming this morning but with sterling not far behind again on jobs and BoE expectations.

The BoC is priced for 22 out of 25bps of a rate hike one week from today. Let’s be clear on one thing—Scotiabank Economics was way ahead of everyone else in consensus and way ahead of market pricing in calling for hikes this year. November’s forecast last year showed hikes in 2026H2 that we punted to Q4 in our January update and held steady on that timing since while adding another hike since then.

POLLS CORRECTLY CALLED ALBERTA’S SEPARATIST VOTE

76% of Albertans voted to remain in Canada and against starting the process toward a referendum on exiting (chart 1). Results are here and are still being tallied but the sampling and statistical margin of error strongly lead to the conclusion that ‘remain’ won hands down. The polls correctly called it.

Markets totally ignored the outcome when CBC called it at about 1:15amET. TSX futures were unchanged. So was CAD on an otherwise solid gain for a second straight day having everything to do with the Bank of Canada and higher oil prices.

Canada emerges from the vote in stronger fashion. The last thing it needed was division given that the US administration seems closer to Russia than Canada and the need for national unity around core domestic priorities. There should be some accountability for having called this waste of taxpayer money in the first place and the risk that a surprise Brexit-like vote could have been a risk. How separatists exact their vengeance on the provincial administration remains uncertain, as will ill sentiment toward various US actors whose interference in the referendum was well documented by news media organizations.

BC’s election this weekend will be the next major development on Canada’s calendar while polls show the incumbent NDP administration is at strong risk of losing to the Conservatives.

BOC FOLLOW UP

As shared with clients and chat rooms, what will concern the Bank of Canada the most about its consumer and business surveys that were refreshed after CPI will be longer-term inflation expectations.

Consumers expectations for inflation five years out jumped toward 4% (chart 2) while businesses signalled steady longer-term inflation expectations above the BoC’s 2% target (chart 3). I don’t hold this data in high regard. The sample is stale on arrival because the BoC is so slow at getting the results out from sampling that was concentrated in August before oil prices really began taking off again. Besides, consumers and businesses generally have a poor understanding of inflation. 

Yet the BoC follows these measures. Governor Macklem has previously dismissed the rise in short-term inflation expectations in favour of emphasizing stable longer-term measures. The fact he can no longer say this

is likely to drive some hawkish discomfort at the BoC. Knowing the initial sample readings when he spoke at the IMF meetings this past weekend may have been a modest contributor to his hawkish leanings.

A separate issue is the prospect of serial hikes by the Bank of Canada after next week in keeping with client questions. We already have hikes in three of the next four BoC meetings starting next week through March so I’m not personally comfortable with turning more aggressive on the shorter-run rate picture for now although open to tweaks as we learn more.

One reason for this is not counting your chickens before they’ve hatched.  There is a modest but non-zero chance that the Bank of Canada could surprise markets with a hold next week although I don’t believe they will. There have been some past instances when the BoC has whiffed on market pricing for either a cut or a hike, but not under Governor Macklem’s tenure since taking over from Governor Poloz in 2020.

Another reason for this is to recall the BoC’s playbook around past energy price shocks.  After WTI collapsed over 2014H2, the BoC cut in January 2015, skipped, and then cut again. The reasons for the skip included guidance that there is merit to keeping powder dry amid the uncertainty, policy adjustments don’t have to proceed in a straight line, and markets had done some of their work for them. This last point is a bit of a chicken-and-egg issue in that markets did their work for them assuming they would cut, so had they not, then markets would have reversed.

That period may be instructive to today’s context albeit given great differences like trade, changed domestic priorities, fiscal stimulus etc. Uncertainty nevertheless remains elevated. The six-week period between next week’s decision and December’s decision may reveal another expansionary Federal budget, but the BoC’s annoying practice is to declare nothing changes until they incorporate the effects into their rigid quarterly forecasts in January. The environment after US midterms and any spillover effects in the ‘lame duck’ session of the dying Congress may wish to be considered.

The more interesting debate may be whether 3¼% is high enough as our terminal rate as it would merely pivot the policy rate from the low end of the neutral rate range to the high end that would not necessarily be restrictive.

UK JOB MARKET BOLSTERS BOE HIKE PRICING

Evidence of strength in UK labour markets added to expectations for the Bank of England to hike Bank Rate on November 5^th. Pricing bumped up by 1–2 bps to almost a fully priced 25bps hike. Sterling appreciated post-jobs and is among the class leaders the USD this morning. The UK 2-year gilt yield increased a couple of points to 4.95% and the curve registered a mild bear steepener.

• Payroll employment was up by 13k in September for the strongest gain since August 2025 (chart 4).

• Total employment increased by about 100k in August for the strongest gain since May 2025 (chart 5). 

• Wage growth held steady at 3½% m/m SAAR in August (chart 6).

• The unemployment rate fell to 4.7% and has fallen from a peak of 5.2% at the turn of the new year (chart 7).

• UK job vacancies were little changed as they dipped below 700k for the first time since April 2021 (chart 8).

TRIVIAL US DATA

Updates on housing starts during September (8:30amET), US pending home sales during the same month (10amET) and ADP’s weekly private payrolls measure (8:15amET) are all due out. None of them are likely to be terribly impactful to markets.