Conflict in Europe Reaches New Level of Intensity

Russia-Ukraine war pushes rates lower. Swap rates declined ~8 bps overnight on rising geopolitical tensions between Ukraine and Russia. However, growing concerns were largely downplayed by U.S. officials, which drove a gradual rate climb throughout the remainder of the session. Treasury yields closed 1-3 bps lower across most of the curve. Meanwhile, the tech-heavy NASDAQ rose over 1% today, led by a 4.89% Nvidia rally ahead of its earnings call tomorrow. Nvidia’s move was largely fueled by Wall Street analysts noting strong chip demand and news that customer Nebius Group is launching its first GPU cluster in the U.S.

Conflict in Europe sees major escalation. Ukraine capitalized on permission granted by the U.S. to use long-range missiles to attack Russian territory, striking an ammunition depot in southwestern Russia. The strikes occurred amidst the arrival of North Korean troops to support Russian forces, and on the same day that Russia lowered its threshold for using nuclear weapons in response to a conventional attack. Russia has rattled the nuclear sabre throughout much of the conflict to deter the west from providing Ukraine with more robust military support. Calls for peace still abound – recently, German Chancellor Olaf Scholz called Putin to discuss peace talks, but Scholz said publicly that Putin showed no interest in compromise.

Canadian CPI climbed in October. The Bank of Canada cut policy rates by 50 bps at last month’s meeting, and markets have fully priced in another rate cut in December. Futures markets are now tilting toward a 25bp cut after today’s consumer inflation data, compared to 50 bps previously. Headline CPI accelerated to 2.0% year-over-year in October from 1.6% in September. Core inflation ranged from 2.2% – 2.6% across a series of year-over-year measures, climbing 0.1% – 0.2% vs. September’s readings.