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Interesting times for equities!

Stocks tumbled on Thursday and the Nasdaq posted its steepest daily drop since early June as a batch of high-profile earnings reports ignited fresh fears about the AI spending race, sending investors scurrying to the safety of the bond market. Yields on U.S. Treasuries, which move inversely to prices, saw some of their biggest one-day declines in years.
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Meta Platforms’ results beat analyst expectations, but its stock slid 7.0% as the Facebook parent posted its first cash outflow in more than a decade due to ​its AI-related expenditures and announced plans to issue non-voting shares in a two-for-one split to ‌raise capital to spend on the nascent technology.
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Domestically, markets are pricing in nearly 80% odds that the Bank of Canada will hike interest rates next week, in what would be its first move on rates in a year, as it fights off the inflationary impact of surging crude oil prices. Several economists, however, say the bank should stay on hold for now.

The yield on the benchmark US ⁠10-year Treasury note fell 19.3 basis points to 4.953%, its biggest daily drop since ​March 10, 2023. The yield had risen to 5.3645% on October 7, its highest since April 2002.
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The Dow Jones Industrial Average rose 11.89 points, or 0.02%, to 52,867.98, the S&P 500 lost 93.74 points, or 1.21%, to 7,663.43 and the Nasdaq Composite lost 694.00 points, or 2.60%, to 26,008.86.

The S&P/TSX Composite Index ended down 351.54 points, or 1%, at 35,973.45. It posted on Wednesday its highest closing level since September 22.

CIBC has announced an LRCN issue, 6.631%+297 (taxable to holders as interest):

CIBC (TSX: CM) (NYSE: CM) today announced a domestic public offering of $1.0 billion of 6.631% Limited Recourse Capital Notes Series 11 (Non-Viability Contingent Capital (“NVCC”)) (Subordinated Indebtedness) (the “LRCNs”). The LRCNs will be sold to certain institutional investors through a dealer syndicate led by CIBC Capital Markets.

The LRCNs will be issued at a price of $1,000 per note and will bear interest at a rate of 6.631% annually, payable semi-annually, for the initial period ending on, but excluding, November 28, 2031. Thereafter, the interest rate on the LRCNs will reset every five years at a rate equal to the prevailing 5-year Government of Canada Yield plus 2.970%. The LRCNs will mature on November 28, 2086. The expected closing date of the offering is October 28, 2026.

In connection with the issuance of the LRCNs, CIBC will issue Non-Cumulative 5-Year Fixed Rate Reset Class A Preferred Shares Series 66 (NVCC) (the “Series 66 Shares”) to be held by Computershare Trust Company of Canada as trustee of CIBC LRCN Limited Recourse Trust (the “Limited Recourse Trust”). In case of non-payment of interest on or principal of the LRCNs when due, the recourse of each LRCN holder will be limited to that holder’s proportionate share of the Limited Recourse Trust’s assets held in respect of the LRCNs, which will consist of Series 66 Shares except in limited circumstances.

CIBC may redeem the LRCNs during the period from October 28 to and including November 28, commencing on October 28, 2031 and every five years thereafter with the prior written approval of the Superintendent of Financial Institutions (Canada), in whole or in part on not less than 10 days’ nor more than 60 days’ prior notice.

The net proceeds to CIBC from the sale of the LRCNs will be used for general corporate purposes, which may include the redemption of outstanding capital securities of CIBC, and/or the repayment of other outstanding liabilities of CIBC.

The LRCNs will be offered by way of a prospectus supplement to the bank’s short form base shelf prospectus dated October 5, 2026, to be filed on or about October 20, 2026 with the securities commissions and other similar regulatory authorities in each of the provinces and territories of Canada.

PerpetualDiscounts now yield 5.76%, equivalent to 7.49% interest at the standard conversion factor of 1.3x. Long corporates yielded 5.31% on 2026-10-21. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed to 220bp from the 230bp reported October 14.

Canadian inflation rose:

The annual pace of inflation rose to 3.1 per cent in September as war in the Middle East continued to drive up gas prices, Statistics Canada said Monday.

The agency said the acceleration was led by a 27.8-per-cent spike in gasoline prices last month compared with a year earlier, despite the switch to the less expensive winter gas blend.

Excluding gasoline, consumer prices increased 2.2 per cent year-over-year in September.
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Meanwhile, grocery prices increased 1.7 per cent last month, the smallest yearly increase since May 2024, according to Statistics Canada.

Driving the slowdown was a 2.9-per-cent drop in prices for fresh vegetables, while sugar and confectionary items fell 2.7 per cent.

Beef prices, meanwhile, rose at a slower pace in September, up 8.7 per cent compared with an 11 per cent increase in August.

Despite the year-over-year slowdown, the agency said prices for groceries have increased 33 per cent since September 2020.
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During a media roundtable from Thailand on Saturday, Macklem warned that persistently high energy prices were increasing the risk of broader inflation and that the central bank was prepared to raise rates if necessary.

He said the prevailing message from his peers at the International Monetary Fund meetings in Bangkok was that the global economy has been performing better than expected in the face of ongoing wars in Iran and Ukraine, sweeping trade disruptions and higher borrowing costs from rising bond yields.

But Macklem also said that resilience is increasingly “under strain” as shocks like the Middle East conflict persist and drive up energy prices.

Some of those sources of resilience – like releasing global oil reserves – are being depleted, he said.

“You can only release strategic energy, oil reserves so many times, but that has helped contain this energy price shock,” Macklem said.

So it was an active day…:

Money markets are pricing in strong odds that the Bank of Canada will hike its key lending rate next week, in a major rethink of interest rate probabilities ignited mostly by governor Tiff Macklem’s hawkish comments on the weekend. The repricing weighed on Canada’s equity market Monday while sending domestic bond yields sharply higher.

Implied interest rate probabilities in overnight index swaps markets suggest a 75 per cent chance there will be a quarter point rate hike by the bank on Oct. 28, according to Bloomberg data. The market is positioned for an overnight rate of 2.455 per cent at the conclusion of next week’s policy decision, rising to 2.614 per cent by the Dec. 9 decision. The current overnight rate is 2.25 per cent.

That’s a considerable swing from just last week, when markets were pricing in less than 50 per cent odds of a rate hike this coming week, even though they were putting strong odds on a hike by the December meeting.
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Canadian bond yields today are reflecting the reassessment of interest rate move odds. The 2-year yield, sensitive to central bank policy, is up 14 basis points in afternoon trading. That’s four times the move higher today in the equivalent U.S. Treasury, and a large move in one day for bond markets.

The five-year yield – closely watched for its impact on fixed mortgage rates – is up by the same amount, now back to where it started this month after trending lower over the last couple of weeks.
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For its part, the TSX underperformed U.S. indexes, with the interest rate sensitive utilities sector among the worst performers, losing 1.4 per cent. Real estate lost 1.3 per cent.
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The ⁠S&P/TSX Composite ​Index ended down 247.92 points, or 0.7%, at 35,928.63, after posting its highest closing level in more than three weeks on Friday.

The Canada five-year bond closed at 3.68%, up 15bp on the day.

There was a big pop at the close for the TXPR price index due to…:

Rebalancing

Index membership is reviewed quarterly. Rebalancing occurs after the close on the third Friday of January, April, July, and October.

The TXPR price index was up 67bp to 705.57. Volume was 4.27-million, more than double that of the second-highest volume of the past 20 trading days.

CPD was up 7bp to 13.98, on volume of 23,190 (consolidated: 88,060), third-lowest of the past 20 trading days.

ZPR was down 8bp to 12.88 on volume of 147,730 (consolidated: 434,060) well above the median of the past 20 trading days.

US equities got whacked:

Wall Street ended sharply lower on Friday, with CoreWeave, Broadcom and other AI-related technology stocks under renewed pressure, while a jump in oil prices spooked traders heading into the weekend. The TSX ended with a very modest gain, with strength in the heavily weighted energy sector helping to offset losses in tech stocks, which have much less influence on the Canadian benchmark.

The Nasdaq extended losses from earlier ⁠in the ​week, hammered by concerns that debt-laden AI infrastructure companies may not turn profits in time to repay debts, particularly with borrowing costs expected to rise.

Nvidia-backed CoreWeave slumped 12%, bringing its loss over the past five sessions to about 25%. The data center operator’s bonds also sold off sharply this week, pushing yields above 15%.
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Investors on Friday were also watching oil prices jump around 3%. Brent touched US$110 a barrel for the first time since ​May on worries that escalating tensions ‌in the Middle East could further tighten supplies.
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The ⁠S&P 500 declined 1.09% to end the session at 7,659.44 points. The Nasdaq declined 2.15% to 26,140.03 ⁠points, while the Dow Jones Industrial Average dipped 0.34% to 52,002.41 points.
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The S&P/TSX Composite Index closed at 36,176.55, up 39.45 points, or 0.11%.
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Federal Reserve Chair Kevin Warsh on Friday voiced optimism about US economic strength and surprise ⁠about how well global economies have been “hanging in there” during a lingering energy shock and tighter monetary policy to fight inflation.

US wholesale inflation picked up:

US wholesale inflation jumped in September to its highest level in more than four years, marking the second hotter-than-expected inflation reading this week and adding to concerns about the economy just weeks before the midterm elections.

The Producer Price Index rose 1.3% from the month before and 6.3% from the year before, according to Bureau of Labor Statistics data released Thursday morning. It’s a sharp upswing from August when wholesale prices rose 0.5% to an annual rate of 5.6%.
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Energy prices, driven higher by geopolitical conflicts including the war with Iran, drove September’s increase, accounting for 80% of the 2.9% leap in goods prices. That’s the largest-ever monthly increase, according to BLS data that goes back to 2009.

However, businesses are contending with price pressures beyond energy. Core PPI, which strips out food and energy, rose at 0.7%, its fastest rate in five months, lifting the annual rate to 5%, its highest since January 2023.