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Hello and welcome to Economic Impact. It is November 9th, 2026. Stefane, again, a pleasure to see you. We talk once a month, but every time it feels like it's been a year.

Action-packed.

There you go. So again, last week something happened here in Canada that we need to talk about.

Action-packed central banks. We mentioned last time around that the Bank of Canada was one of a few central banks that had not hiked. Nancy, peer pressure. Peer pressure took place at the BoC and they hiked rates for the first time since 2023, which I have to say surprised me a little.

Yeah, it was a bit early based on your analysis so can you tell us why?

Well, I understand that they're concerned about inflation, but at the same time, although it's not the primary mandate, the primary mandate is inflation. You can't ignore what's happening in labor markets. Few days after they raised interest rates while the labour market showed the third consecutive monthly contraction in jobs, the unemployment rate drifting higher at 6.7%. It's not the same emergency that we're seeing in the US in terms of, you know, labor market tightness.

And you have another slide where we see another foundational difference between us and the United States.

Yeah so OK, I understand, you know, it's not your primary mandate to look at jobs, but it's not like you're going to create a lot of inflation with the job market like this and at the same time, if you want to tackle the primary objective, which is inflation, well, I'd like to point out there's only 35% of components in Canada that are showing 3% inflation or more in terms of the CPI basket. You're in line with your historical average, Nancy, whereas in US you're at 50, about 50%. So I understand why you need that.

It's the pressure.

Yeah, but from a BoC bank account perspective so listen, let's give them the benefit of doubt on that but what that implies, Nancy, is there's no need to be for rapid rate hikes in Canada. So they'll probably take a pause at the next meeting.

And again, inflation is going upward and you've told us many times that inflation is not our politicians' best friend.

No, the worst enemy of all incumbents and we see this in the US so if you have more than 50% of your CPI components that are rising at more than 3%, you can't be surprised that your headline inflation is now close to 4% at 3.6%.

And we mentioned last time around that, you know, this is the most difficult part, this is the worst enemy of every politician and it that actually had some important ramification.

And then we saw what happened last week exactly reflating one of those, which is the insatisfaction towards inflation and other stuff.

Yeah you know, so US consumers continue to spend, Nancy. But, you know, you can see the new composition of Congress. You know, they, you know, the big surprise is that the Democrats took control of the Senate. The House was expected, but not the Senate. So full majority in Congress, you have to go back to 2008 for that. So it's not that US consumers are not spending. GDP was strong, but they're spending on stuff they don't want to spend on, right? So higher energy prices, higher electricity prices. So gasoline, electricity, food is going up. Interest rates are higher and toy prices are up by 7%, which is the biggest increase in 40 years so just before Christmas.

Yeah, just before Thanksgiving and Christmas.

You're right so it was a big challenge for in the midterm elections. so big change in Washington.

And it is reflected in in the market.

So when there's a big change, you have to wait and say, OK, how do I settle? What's my new equilibrium value with long term interest rates? You could say, well, where the majority of Democrats maybe, you know, the war and the Strait of Hormuz will appease and then maybe lower energy prices, brings inflation down, breaks interest rates down, which would be good for equity markets. But in the meantime, I have to say, Nancy, the market is in limbo. Like what's going to happen? The new Congress doesn't take effect until January, right? So in the meantime, you can see that the IT sector, which has been the primary driver of the S&P 500, is down, you know, almost 16% as of last Friday. Communication services hit by higher interest rates so there's not one sector that's doing well. So the market's in limbo. You're still up year to date, don't get me wrong.

It's compared to the highest.

Compared to their peaks, respective peaks and you can see that the market is, you know, we'll see what happens, will the new policies in Washington under the new Congress be more restrictive to deploy in artificial intelligence, which accounts for 1/3 of US GDP growth right now. So we have to wait and see, but, and there could be some profit taking as you wait.

Of course, and you don't have a slide for it specifically, but we know that in Canada it's holding up a bit better.

Yeah, down roughly 3%, not 6% and year to date, it's still one of the best performing markets on the hope that you know, in Canada we have a decent story for 2027 when it comes to economic growth and business investment and profitability.

So again, last week, another announcement we had the budget from Carney and his team.

So it's not because you get a change in Congress, and you mentioned that before. I mean, the Congress even under the Democrats was very protectionist. Joe Biden was using subsidies to suck all the capital into the US, right? So the change in Congress, we'll see what happens, but clearly from a Canadian standpoint, it's not time to let down your guard and that's why we need a budget.We have this uncertainty about US market access in the meantime, we need to reindustrialize and the government presented a budget with $142 billion of new spending initiatives, about more than a third is for investment, which is, which is good news. And the most important part, Nancy, is we're keeping the deficit below 2% to GDP, which means that, you know, foreign buyers of Canadian bonds are not panicked where the deficit this size just for comparison, in the US it's close to 8%.

And this, if well executed will create jobs in the years to come, reindustrialize our economy so it should be good.

Well, you just mentioned the magic word execution. It's all about execution for 2027. So we could do it be in limbo here in Canada too, because you might have a budget like this, which is very telling in terms of, you know, bringing investment back to the country but I need US market to access more visibility. So the president has recently mentioned that he might be looking into making a deal with Canada we'll see on that front what happens. But clearly execution is the name of the game for 2027 for the Canadian, for the S&P TSX.

Yeah. Well, Stefane, thank you very much. Very enlightening. And as you see, it is volatile. But as you know, end of year like this, we do have strategies that you can put in place with your advisors on some tax strategies so please take the time to review your own situation with your advisor. And Stefane, I'm going to, I'm sure that in December we're going to be again, very busy looking at what's happened in the last couple of weeks.

We'll find something to speak to, I promise.

Absolutely. Thank you. Thank you all.