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Hello everyone, welcome to Economic Impact. Today we are November 12, 2025, and as usual, I am with our Chief Economist, Stéfane Marion. Stéfane, once again we need to talk about, you know, Canada versus U.S., but rate cuts now.

There are so many things we want to speak to you Denis today, but let's start with the rate cuts because that's your specialty as a former head of fixed income. So yes, monetary easing cycle continued in Canada in October. 9th. It was the 9th easing rate cut since the beginning of the cycle that started in the summer of 2024. You know, we spoke last month, could there be more? The Bank of Canada was cautious on this one, Denis. It says, "I'm giving you one, but I think rates are neutral and I think I might be done for this easing cycle". So there's a considerable gap that remains with the U.S., you know, to reflect some of the challenges that we face on this side of the border. But it seems like the Bank of Canada is comfortable now saying, "Well, maybe monetary policy is where it should be".

Do you think it's unusual thinking that the rates will not go lower, considering what we see in the economy right now?

I would have thought so, like you, but the surprise in the Canadian economy over the past month, the past two months, is the uncanny resilience. So, the service sector in Canada, which is the biggest chunk of the Canadian economy, is indicating growth for the first time in nine months, right. And the manufacturing sector is still showing contraction, but nowhere near as bad as what we saw, so it seems like the Canadian economy is stabilizing with growth. It's not a boom Denis, but it's better growth than we had forecasted. So, you could justify the Bank of Canada's message based on the recent evidence that we're getting from economic reports.

And this is also what we get from the unemployment number, which was a big surprise.

All these surveys are meaningless if you can't confirm it with real data. And the real data shows that we've had some job creation to the extent that, good enough, to the extent that the unemployment rate actually edged below 7% for the first time in a few months. And more importantly, the wage inflation is growing at roughly 4%, which is above inflation. So that means that there is purchasing power at the consumer level that could help stabilize the Canadian economy, despite the fact that the export sector remains challenged.

It's quite interesting seeing that because this is not the perception we have when we're listening to the news. It's very negative compared to the results here.

You're right. And if you look at the, you know, there's been announcement that Ottawa's thinking about reducing quite significantly the size of the civil service in Ottawa. But having said this, what's happening in the private sector in Canada shows again, this resilience. So, notice in the U.S., the trend on private sector employment, this is a private survey Denis because, as you know, the government is still shut down-reopening, but it's going to take time to get the official data. But the private sector suggests this downtrend in U.S. employment growth. Canada is more volatile. So, I can't say that we have broken the trend with the U.S., but clearly in the last month we did. So again, that just speaks to some resilience in the private sector because the earnings season was better than expected on the S&P/TSX, so that would be reflected on employment. So, private sector holding up relatively well at this point in time. Again, suggesting that the BoC, the Bank of Canada, might have been justified to say, "Well, maybe we've done enough".

Now we have the reason. Ok. And now we have to talk about the budget in Canada because we spoke about it the last time. Now it's done.

Yeah, so we spoke last month. Ok, so one of the reasons the Bank Canada says, "Well, I need to pause now" is because, you know, we are getting fiscal stimulus in Canada. Maybe the budget was not as transformational as we thought it would be last month where we were arguing for $100 billion deficit, 3% of GDP. It came in that $80 billion. So, Denis, close enough to say, is it a structuring budget? I think it is because if you look at the composition of the spending for the years ahead, look at these blue bars, this is investment. This is not just spending that just goes to consumers and then that disappears in the economy through some import leakages. Absolutely not. This is a commitment to invest in the Canadian economy and to start to reindustrialize the country. So, notice that on the operating balance, you know, Ottawa says "Well, we'll be in surplus in three years from now, but we are committing roughly $280 billion to investment in the Canadian economy". So, Denis, that is structuring.

And this is how you build confidence in an economy when you see that amount of investment, which are not expenses, which down the road will produce revenue.

Yes, so, so you're going to run a 2.5% deficit as a share of GDP this year. But the commitment to skew it towards investment means that investors are unlikely to say, "Well, we don't believe in your story". They're going to say, "Ok, finally". And it's not just the spending Denis, it's also the commitment to reduce the substantial amount of regulation in this country. And also, importantly to say, maybe assets will be available for these pension funds to buy into Canada. So, in terms of, you know, positioning this budget, I would say it is structuring. So, we spoke about that last month and that was important and I think that they went in the right direction. Now there's a few things that need to be settled among which, you know, trade negotiations with the U.S. need to resume because that stopped since last time we saw each other. So. But again, it's certainly a big step in the right direction.

And that new picture to see deficit probably translates also positive on the stocks in the equity market because, we're not at a new high, but we're doing quite well.

Well, the performance this year has been stellar. I mean, more than 20%. Last time we saw that was 1993. By the way, that's the last time the Blue Jays won the World Series.

Well, we were close this year.

You were close.

Very close.

But we did more than 25% in 1993. So, we didn't win this year, but maybe, you know, more than 20% is great. So, aside from the Blue Jays, there's the fact that again, this budget is credible. And if you cut regulations for corporation, that means that you will help profitability down the road and that's more sustainable for the Canadian economy. We need to bring investment back to Canada. It's making Canada investable again. And I think on that side, the budget was important for investors. So, a lot of good news already priced in Denis. I can't promise you a repeat performance next year, but this proves that, you know, the budget was relatively well received. Now it's a matter of execution.

Yeah, exactly. And we see also that the Canadian dollar are fine, kind of. We saw the bottom, but now I think it's above $0.70. It's natural that the Canadian dollar is there.

No, you're right. And since the start of the year, we've seen, you know, Canadian dollar depreciation. Our forecast is, well, we might go to 1.42. You can see we went to 141.5, which is close enough to 142. I think you'll agree with me. Now, have we found the cruising altitude? A key condition to finding the cruising altitude for the Looney was this budget. So, the budget is credible. Now, what we're missing is, the budget was necessary, but not sufficient. Now we need to execute on bringing the regulation but also restarting these trade discussions with the Americans to provide, to have the full impact of the budget. So again, not out of the woods, but I think we're starting to find a cruising altitude. So, there might be more side for Canadian dollar appreciation in the quarters ahead.

Well, thank you Stéfane and thank you all of you. Today is my last presence on the stage. I would like to thank all the people, the investors who are listening to us and the positive comment that we get and we had. Very, very helpful to make that, you know, capsule better and better every day hopefully. I would like to thank also all the people here who make that thing happen. Spectacular team, all the technicians and the people around these stages are fantastic. And Stéphane, thank you very much for let me do that for you for the last past two years or so. It was a lot of fun, a lot of pleasure and long life to Economic Impact.

Denis if I may, I just have to thank you for the 35 years you spent at the Bank. And I would just want to say it was a privilege to work with you.

Thank you Stéfane.

Thank you very much.

Goodbye.

Hello, everyone. Welcome to Economic Impact. It's October 14, 2025. I am with Stéfane Marion, our Chief Economist. Hello, Stéfane. A bit different today. You know, in absence of economic news and then the weight of the budget of Mr. Carney, we're going to talk about performance, but also gold.

So, we have a U.S. government shutdown, we're still waiting for a budget in Canada, China and the U.S. are still going at it with tariff threats. But in the meantime, new all time high for equities as of last week, Denis. So, the absence of news seems to be good news for markets. I can't promise we're going to end the year at a record high. It's been a fantastic year, up more than 30% since April. So, let's keep an eye on the next few weeks. As I say, I think there's going to be more volatility.

And all assets are performing well also.

Yeah.

Which is unusual.

In the meantime, Denis, if you want to look at it from an asset class perspective, you couldn't go wrong this year. So, it's a fantastic vintage for a Canadian investor. This is total returns expressed in Canadian dollars. So, we've had, you know, good performance for the Canadian dollar year to date, but up more than 20% for emerging markets. Look at the S&P TSX, up more than 20%. But as I said, you couldn't go wrong this year because every asset classes were up. The only ones not beating inflation would be a Canadian bond market and obviously cash. But all in all, a good vintage for Canadian investors.

And for the first nine months, the S&P and TSX are doing quite well if you compare to the past.

Well, 20.7% for the S&P TSX, 8% for the S&P 500. If you put this in perspective, more than 20% in nine months for the S&P TSX doesn't happen very often, Denis. Last time it happened, you have to go back to 2009 as the economy was rebounding from the Great Financial Crisis. Prior to that, you have to go back to the 2000's, just before the bursting of the NASDAQ bubble, so, fantastic performance. So, let's not be too greedy as investors either, right?

Yeah. And not only that, but all sectors inside the TSX did well.

All sectors delivered positive returns, except for healthcare. But I have to say that, you know, beating the index, 3 sectors beat the index, IT, banks, but the one that had the most leverage on the overall index was materials, up more than 76%, and, within materials, gold stocks were up more than 100%.

And now gold stocks represent a lot inside, you know those indices.

Some people will say, well, it's a record. It's not there yet, Denis. So roughly 11% of the S&P TSX.

Very close though.

The market cap is gold stocks. Going back to the 1970s, the only other instance where we surpassed the current level would have been in 2012. Remember back then people were fearing the debt crisis in the Eurozone. My view, Denis, I do have a strong conviction that we will probably exceed the all-time high in the next few weeks just because of the geopolitical backdrop.

We are at the high right now at $4000 U.S. and the gold.

You're right. So, if you go back to, and if you express this, because I wasn't sure if you were talking about in 2025 dollars, but you were, $4000. If you go back to the 1970s and if you express everything in 2025 dollars, in 1980, yeah, gold prices was lower in nominal terms, but in 2025 dollars it was the equivalent of $2800. Can you believe it's only at the beginning of this tear we were still below $2800 and now we're at more than $4000. So, the question is, is there still upside for gold? If you want still upside, you need more buyers, right?

And there's a lot of buyers. The world is buying gold right now.

Everyone seems to be buying gold. But I think that where it becomes interesting is that there's an institutional demand for gold and central banks are accumulating gold. They own now 36,000 tons of gold, which now represents roughly 1/4 of their total assets. So, and in the meantime, not everyone, that's the global average. If you can look at a country like Germany is at 70%, but a country like China, which is a big central bank, they still own less than 7% of the total assets in gold.

Yeah, which is very unusual. But now, they own more gold than treasuries.

At the global level, you're right. That 26% seems high, but if you put it in perspective going back to the 1970s, it's still much lower than what we saw there in the 1970s. But you are right to say that they are, the central banks, the institutional demand is diversifying out of U.S. treasuries. And now for the first time since the early 1990s, the central banks own more gold than U.S. treasuries. So, that's part of this whole geopolitical backdrop uncertainty. These central banks are big. If they're not sure about whether the U.S. will still have a dominant role in global financial markets, there they are diversifying and they're not buying Bitcoin, they're buying gold as opposed to U.S. treasuries.

They're buying gold, but they want to buy more.

So, you could say at 26% that they had enough. And there's a survey, there's an interesting survey that's published every year and for the first time since the survey has been available, we reached a new all-time high about, you know, the so-called willingness of these central banks to accumulate more gold. And now we have 43% of these banks saying, you know what, I might still buy more over the coming year. So, that's the point of today's presentation. There's demand for gold, people are asking us what's happening. What characterizes the current cycle for gold is this institutional demand coming from these central banks.

Yeah. We're going to change the subject a little bit. It seems that tariffs bring a lot of money and from Trump's pocket.

True. And that puts uncertainty on inflation and that is also a source of demand for gold because these central banks are saying, well, clearly the U.S. wants to disengage from the global supply chain or they want to reindustrialize, it might cost more. And at the end of the day, this old, you know, tariff collection now, Denis, which really started in June, now reaches $360 billion annualized in Q3. Don't forget, Denis, we said it last month, we're going to end the year at $500 billion of tariff collection. So, that is also part of the reason these central banks are saying, well, that might put more pressure on inflation, lower U.S. dollar. Buy gold because of this uncertainty.

Well, thank you, Stéfane, and thank you all for continuing to listen to us. But above all, don't miss our next meeting in November. Thank you.