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This bear market rally was about to run out of steam, but the Bank of Canada had other plans. ​ A Canadian dovish surprise gave risky assets an unexpected boost. ​ This bear market might last a little while longer, but traders can’t forget about what will drive the data-dependent Fed. ​

Big-tech earnings are showing that margins are pressures have arrived. Cracks in the economy are here. Tighter financial conditions are not going away. Meanwhile, inflation and labor stats are not declining fast enough to support a Fed downshift just yet. ​ The Fed won't have clear signals that they can downshift tightening until next year, which means the risks of overtightening are still on the table. ​ The soft landing playbook just got thrown out the window and now Wall Street needs to gauge how bad of a recession will hit the economy next year. ​ ​

Financial markets closely watched the Bank of Canada decision that delivered a clear message that they are getting close to being done with tightening. Wall Street is hoping the Fed will follow the Bank of Canada's lead in expecting inflation to ease further by year-end. ​ The Fed won’t blink next week and the risk of a 75 basis point hike in December should still remain on the table. ​ ​ ​

BOC delivers 0.50% hike

The Bank of Canada has tried to get ahead of the pack when it comes to monetary decisions. ​ They hiked by a full point in July, while others opted for 75bp and now they have downshifted their tightening pace to a half-point rate rise. ​ BOC Gov Macklem said, "This tightening phase will draw to a close. We are getting closer, but we aren't there yet."

The bank's outlook is not optimistic at all and it seems demand destruction will help bring down inflation. ​ The bank noted that the global outlook is grim and that growth is close to zero. ​

The Canadian dollar initially tumbled on the smaller-than-expected half-point rate hike but did pare losses as investors still like the Canadian economic outlook much better than most of the other advanced economies. ​

Big-Tech Disappointment

Both Microsoft and Alphabet earnings results killed what was becoming a not-too-bad outlook for the economy. ​ Alphabet had a poor earnings report that emphasized a weakening client base, a slump with ad spend, slower hiring, and currency headwinds. ​

Microsoft saw the worst first-quarter revenue growth in five years and had a rather bleak outlook for Azure-cloud sales. Microsoft is noticing softer corporate demand and that theme is becoming the consensus across big-tech. ​

Another key bearish driver for the tech space was the update from Seagate that included a 7.5% reduction in its workforce. ​

Cryptos

Bitcoin is back above the $20,000 level as Wall Street grows optimistic that we are about to be done with financial tightening. ​ The dovish surprise from the Bank of Canada is a game-changer for central bank tightening expectations. ​ Crypto will struggle with a deteriorating global growth outlook, but extensive pain as a result of the bond market selloff could be ending soon. ​

Bitcoin is now comfortably above the $20,000 level and now it will try to stabilize here until the FOMC meeting. If risk appetite remains healthy, bitcoin could grind higher towards $22,500 level. ​