The bond market takes the wheel
August forced every narrative through one filter: the cost of money. Strong earnings and resilient activity ran up against four linked concerns: dependence on the AI capital-spending cycle, energy-driven inflation risk, a renewed Canada–U.S. trade conflict, and the rising cost of financing large government deficits. New Federal Reserve (Fed) Chair Kevin Warsh sharpened it at Jackson Hole on Aug 28: he gave no steer on rates, called commodity strength an upside inflation risk to watch, and pushed back on forward guidance. Markets were left to price a still-hawkish hold with the 30-year Treasury near a two-decade high. For Canadian investors, the mix was relatively supportive. The domestic market leans on financials, energy, and materials. However, Canada is not insulated: weaker U.S. tech leadership, higher global yields or renewed trade friction spill in quickly.
The NEI perspective
Canada–U.S. trade tension: escalation replaces negotiation. Talks collapsed and the U.S. imposed 50% tariffs on C$28 billion of Canadian goods (Aug. 22); Canada answered dollar-for-dollar with 15/25/50% counter-tariffs on C$28 billion of U.S. imports (Sept. 8), plus a C$7.5 billion support package. Bottom line: Direct exposure is targeted (~5% of exports), but prolonged uncertainty is the real risk to investment, supply chains, inflation and the loonie.
AI earnings: strong fundamentals, higher stakes. A blowout Nvidia quarter confirmed AI demand is accelerating, but late-month semiconductor volatility showed how much leadership rests on one theme and highlighted investor concerns about the extent to which the buildout has been debt-financed. Bottom line: Stay invested while diversifying beyond the largest technology winners may help manage concentration risk.
Gold, fiscal credibility and long yields: a new volatility source. With U.S. debt past $40 trillion and the 30-year at a 19-year high, the U.S. Department of the Treasury (Treasury) doubled its long-end buybacks; a liquidity patch, not a fix. Meanwhile, gold and a two-sided dollar signalled investor unease about deficits and the term premium. Bottom line: Policy rate cuts won’t guarantee falling long yields; duration and currency exposure should be deliberate, not automatic.