Now that’s scary. Preliminary data from Stats Canada indicates that the Canadian economy is on track to enter a technical recession, with an estimated minor contraction in the third quarter. The data reveals that GDP remained unchanged for the third consecutive month in September. The three months of flat output, following a 0.2% decline from April to June, suggest a 0.1% annualized decrease in the third quarter. This pace is significantly slower than the 0.8% growth projected by the Bank of Canada. The report supports the central bank's view that past interest rate increases are slowing demand and allowing supply to catch up. Consequently, price pressures are expected to gradually moderate, allowing policymakers to remain on the sidelines. 

Much to the ECB’s delight, Eurozone inflation has fallen to its lowest level in over two years. In October, consumer prices increased by 2.9%, a decrease from the previous month's 4.3% and slightly below the 3.1% estimate in a survey of economists. That wasn’t the only thing that fell unfortunately, with the eurozone's third-quarter GDP decreasing by 0.1%. These numbers show that while the ECB's rate hikes are having some success in bringing inflation closer to the 2% target, they are also placing pressure on households and businesses as borrowing costs surge. While the ECB aims for inflation control, it is keen to avoid further damage to the economy and remains cautious about discussing rate cuts. The ECB's President, Christine Lagarde, anticipates a weak economy for the rest of the year but expects a gradual recovery over the coming years as inflation subsides, and household incomes improve. Despite the bleak economic backdrop, markets anticipate the ECB's deposit rate to remain at 4% until at least April. 

Flirting with correction. Despite rebounding yesterday, the S&P 500 officially entered correction territory on Friday, down 10% from its peak in July. The past three months of decline have pushed valuations lower, with various indicators signaling growing bearish sentiment. However, historically, late October often marks the end of seasonal weakness, giving rise to a holiday rally. And despite short-term headwinds, strategists believe that the S&P 500's fundamentals can provide positive surprises. Last year Santa’s rally arrived early, only to reverse course by December. Let’s see what’s in store for us this year. 

Higher borrowing costs are putting pressure on emerging-market companies who need to refinance $400 billion worth of debt maturing in the new year, with another $300 billion of corporate bonds coming due in 2025. Analysts are noting that high-quality companies might experience an interest rate spike, while lower-rated firms may encounter failed refinancing deals, potentially leading to defaults or bankruptcies, particularly for companies from China, Argentina, Brazil, and Ukraine. While it's expected that high-quality companies may weather the storm, a vulnerable section of the market may remain at risk. High-yield companies are particularly susceptible to default risks, and investors are becoming more selective, which could lead to reduced allocation to lower-rated and frontier markets. 

Consumer discretionary stocks have stood out in a strong quarter for earnings, with companies like McDonald's, Chipotle Mexican Grill, Amazon, Hilton, and Royal Caribbean surpassing expectations. So far, 78% of the S&P 500 companies that have reported results so far have exceeded earnings estimates, with consumer discretionary companies leading the way by exceeding estimates by an average of 19%. The consumer-facing companies have maintained higher selling prices and benefited from a drop in raw material costs, boosting profit margins. The performance of these stocks reflects consumer resilience in the face of expectations of a U.S. economic slowdown, with a 4.9% rise in U.S. GDP in the third quarter highlighting consumer health. 

Young Canadians are reportedly more anxious about personal debt and more likely to have missed a bill payment compared to other age groups, according to Equifax Canada. Perhaps a move back home to shore up savings may help ease the angst. The survey, conducted in September, revealed that 52% of respondents between 18 and 34 are concerned about their personal debt, compared to 39% overall. Additionally, 36% of younger adults said they had missed a bill payment this year, compared to 23% overall. Equifax also noted that credit card debt in Canada reached an all-time high in Q2, particularly affecting lower-income households. Housing is a top concern, with 30% seeking extra income to cover mortgage or rent payments, and nearly 20% saying they may need to move due to affordability issues. 

The yen saw a sharp rally yesterday on reports that the Bank of Japan is considering raising the cap on government bond yields during its policy meeting. The reports suggest that Japanese policymakers are exploring the possibility of allowing the yield on 10-year government bonds to surpass 1%. That didn’t last long though, with the yen seeing its sharpest decline in two months this morning following the BoJ’s limited policy adjustments, disappointing some market participants. The yen's retreat brought it below the 150 per dollar mark after the central bank reaffirmed its commitment to yield curve control, with 1% as a reference point. The Bank of Japan's shift in policy direction is closely observed due to its tight control of the bond market since the introduction of yield-curve control in 2016, which has now become more flexible regarding 10-year government debt yields. The prospect of a weaker yen and negative interest rates could lead to further gains for Japanese equities, with the Nikkei 225 already showing an 18% year-to-date rally. 

More tricks than treats. A recent poll found that Canadians are split on whether to hand out Halloween candy tonight, with 48% of respondents planning to give out candy, 46% choosing not to (this number was surprising), and 6% undecided. For households with children, 63% intend to distribute candy. Additionally, 71% of Canadians expect to spend a similar amount on Halloween this year compared to last year, while 15% are reducing their spending and 11% are increasing it. On average, Canadians who spend on Halloween allocate $64.20 for costumes, candy, decorations, and related expenses, while parents spend an average of $115.80. Which side of the Halloween aisle are you on, trick or treat? 

Diversion: What are you going as?

Wheat prices are at the lowest in more than two weeks in Chicago as improving conditions in some key growers bolstered the outlook for crops. In its initial estimate of the season for winter wheat, the US Department of Agriculture said 47% of the crop was rated good or excellent. That matched analyst expectations and marked the best conditions for this time of year since 2019.  

Yesterday several U.S. blue-chip companies joined a wave of bond sales in anticipation of a week packed with bond auctions, central bank meetings, and economic data releases. Issuers sought to get ahead of significant events, including Fed meetings, a Bank of Japan policy meeting, U.S. government debt announcements, and the release of U.S. payroll data. This move comes as stocks rebound, high-grade risk premiums tighten, and credit default swap spreads show reduced market risk perception. Overall, these factors create a favourable backdrop for bond sales, and market participants anticipate a busy few weeks for issuers in the corporate bond market.