The Week Ahead: WMT, NIO and NVDA Earnings; Canada Inflation Data

Investor sentiment is buoyed by Nvidia's aggressive $50 billion buyback program, indicating strong confidence in the company's valuation. Analysts have responded positively, with notable firms like Susquehanna and Raymond James upgrading their price targets based on robust demand for Nvidia's current and upcoming products. However, concerns about supply chain constraints persist, potentially limiting short-term gains despite the overwhelming demand for Nvidia’s new technologies.

As Nvidia continues to dominate the AI processor market, the forthcoming earnings report will be crucial for investors to gauge the company's ability to sustain its growth trajectory and manage external challenges effectively.

As the U.S. heads into a new political era following President-elect Donald Trump's victory, investors are closely monitoring the potential economic impacts of his proposed policies. The anticipation surrounds Trump's campaign promises which include tax cuts and tariffs that could stimulate domestic economic growth but may also exacerbate inflation and disrupt markets. With the inauguration looming, the market, which surged post-election, has seen a pullback, reflecting investor uncertainty about the future economic landscape under Trump's administration. Concerns are primarily focused on how these policies will translate into actual economic outcomes, with a particular emphasis on trade and fiscal policies that could significantly impact both domestic and global economic dynamics.

Adding to the economic uncertainty are concerns about interest rates, which remain high. Investors are wary about the Federal Reserve's future moves, especially with recent economic signals suggesting that reducing inflation to the Fed's target might be more arduous than anticipated. Trump's aggressive stance on trade, including threats of substantial tariffs on imported goods, poses a risk of igniting a global trade war, potentially reversing the deflationary trend in core commodity prices. Market expectations are adjusting, with fewer anticipated rate cuts by the end of 2025, which could exert additional pressure on the bond market and equity valuations, signaling a potentially bumpier economic road ahead as policies unfold.

Canada’s inflation report for October will be in the spotlight on Tuesday after falling below the Bank of Canada’s 2% target for the first time since 2021 in September.

Headline inflation likely edged back to 1.9% from a smaller annual decline in energy prices (-2.8% vs. -8.3% in September). Meanwhile, food price growth likely held steady (2.8% year-over-year in September).

The BoC‘s preferred median and trim core measures (for a better gauge of where inflation is going rather than where it’s been) both likely ticked higher in October on a three-month rolling average. However, they should remain “Below 2.5%” referenced in the policy statement from the BoC’s October interest rate cut.

Economists continue to think that inflation is more likely to drift broadly lower in Canada. With a headline inflation forecast of 1.9% in October, inflation will have hovered around the 2% target for three consecutive months. The diffusion index has also suggested that the breadth of inflation pressures narrowed recently. Meanwhile, labour markets continue to soften with hiring demand (job openings) slowing and the unemployment rate continuing to edge higher. Given the Canadian economy’s weak momentum, we continue to expect the BoC to cut the overnight rate by an additional 50 basis points in December.