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Hello everyone. Welcome to the weekly roundup. Today we cover interest rates, trade relations, and earnings releases. Hello Ben. Hi Eva. How's it going? It's going good.

Okay, we're going to jump right in. It happened. The Fed hiked unanimously and even signaled more could follow. Can this contain inflation without breaking the economy? And what has market reaction been so far?

Yeah, it's always interesting when they take a change of direction. Walsh seemed to tell Trump he would cut rates when he got in, and not shortly after, he is raising rates. So maybe the salesman got sold. I think inflation is something they are worried about. One thing that surprised me is that CPI in the U.S. has come in around 2.4%, which is within their band, but the rate of change is positive and rising.

It almost feels like he raised rates because the market expected it and he did not want to lose face, as opposed to being fully data driven. That will be interesting because Powell was very data driven: the numbers said something, and they reacted to the data. Walsh seems to be moving partly because of the market, but his argument is that they see future inflation and are trying to get in front of it.

That puts the market in a somewhat precarious position because everyone is expecting higher rates and higher prices. If we do not get that, it could put pressure on the economy. The reaction since then has been interesting. I noted in the daily before it came out that maybe this is the top of interest rates, and so far that is playing out. Yields have rallied on the back of the rate hike, which is counterintuitive because you would think raising rates would push yields up and prices down.

Instead, we have seen the opposite reaction. The U.S. 10-year has dropped a bit and is up about half a percent today, while the long end of the curve is up about 1%. The same applies in Canada, where the long end is up about 1.5% today. The Bank of England also chose to hold rates even though inflation is around 4% in England, because they appear more concerned about the economy than inflation levels.

Okay. My next question is about Canada. Canada is exploring closer ties with Europe and could become the EU's first associate member. What could this mean for Canada? Could it help us rely less on the U.S., support businesses, and create new opportunities?

Yeah, I think it is positive. The benefit Canada has had for decades with the U.S. is that it is attached by a land border, so it was easy, cheap, and efficient to get goods into the U.S. and work together. But that was when the economic conditions were appropriate. Now, with a more combative U.S. government toward Canada, exploring Europe makes a lot of sense. Carney has strong relationships with the European Union, and I think he is trying to forge a path forward to make sure Canada is in good shape.

We will go through some charts related to manufacturing, but I do think Canada is in a position where it can continue to make these changes. What a leader needs to make change is chaos in the world, and that is what we have right now. Carney is in a good spot. The longer these economic and kinetic conflicts continue, the easier it is for him to lay foundations and get other parties in Canada to agree. I think he has roughly 6 to 18 months to implement and execute, and Canada is prepared for that.

Okay. My last question is about earnings season, which is still underway. Tech companies continue to report strong AI demand, but there are also rising costs and spending. Are investors seeing enough growth to justify this cost, and what other results have caught your eye this week?

We had Oracle report some pretty good numbers, but Oracle is one of the issuers that is a bit circular, where companies like Nvidia and Oracle all work together and secure each other's debt. They also have off-balance-sheet items that we need to watch. Oracle's numbers were good and the market liked them, but its credit rating is triple-B, which is not as strong compared with companies like Microsoft and Amazon.

That will be interesting to watch, especially with higher rates, because these companies are spending a lot to keep growing. We also saw the CEOs of Anthropic and OpenAI talk about trying to slow down AI because it is moving so quickly. There is growing concern about the pace we are seeing. On valuations, part of why they may be doing that is to talk down valuations and allow some time for levels to catch up. But at 40, 50, or 100 times earnings, if you have any valuation bias, it is difficult to buy companies at those levels right now.

Yeah. Okay, let's see the charts. Okay, sounds good. We are recording this on Wednesday, September 17th, around 1:00, so anything that happens between now and next Thursday, we will comment on then.

There are a couple of charts I wanted to highlight. One says Canada’s manufacturing recession has entered its third year. This is one area where opportunities could potentially present themselves. Manufacturing in Canada has continued to be hollowed out since COVID, and it is something Carney has been paying attention to as he looks at how Canada can right the ship and position itself to grow the manufacturing sector.

If you look at the composition of Canada's employment market, a big part of employment used to be in manufacturing. One area where unemployment is quite high right now is among male high school graduates. There used to be many opportunities in Canada's manufacturing space for that group. When you look at Canada from a company perspective, you could say Canada is undervalued relative to the U.S. and has a lot of potential to add manufacturing capacity. That ties back to the question of whether Canada can and should work on its relationship with Europe, and I think the answer is yes.

Another chart shows Canada moving from fifth place in 2000 to 19th for industrial competitiveness. It gives a good sense of the shift that has happened in the world over the past 20 years. The U.S. has also fallen from first to fifth, while China has moved from 23rd to second and Germany has moved from second to first. Canada has the ability and potential to move this higher, but the chart shows how global power has shifted.

Two more quick charts show that the productivity gap with our neighbours is widening. Manufacturing labour productivity continues to fall in Canada. This raises questions about where the opportunities are, where Canada should invest, and how we can put ourselves in a better position. Carney knows these numbers and is paying attention to how Canada can shift and grow its economy without relying so directly on selling oil to the U.S., which remains a big part of GDP.

Canada’s electricity grid is one of the most resilient and cleanest in the world. Canada is in a good position. We have had a difficult period with manufacturing, driven in part by taxes, retooling, training, and the need to adjust to changing conditions. But Canada has a lot of growth potential, along with relatively cheap and clean electricity. Overall, my view is that Canada is probably quite well positioned for what is ahead. It will not be a straight line, and there are challenges, but there are good opportunities given what is happening in the world right now.

The opinions expressed do not necessarily reflect those of National Bank Financial. Anything discussed today may not be appropriate for you. If you have questions, please feel free to reach out to Eva or me, and we would be happy to discuss whether any of the topics we covered are appropriate for you.

Thank you, Ben. You're welcome. So, what's on the agenda for next week?

A couple of things. This week, Carney held his investment forum, and there was something in the neighbourhood of $120 trillion of investable assets represented there. For roughly 10 years, I have not had much focus on Canada, but it seems like that is changing. There is more interest now. One thing rolled out about six months ago was public-private partnership investment opportunities for Canadians to participate alongside the government.

We will continue to follow that because it may connect to themes Carney talked about recently, such as privatization of airports, toll roads, and other infrastructure assets. If Canadians can invest in those types of assets, that could be interesting for investment portfolios. For next week specifically, we will watch how earnings continue to play out. With rates going up in the U.S. and yields falling today, that will be a key focus over the next several days.

The question is whether this continues or was just short covering. That will likely be an important focus from an asset mix perspective. If yields continue to fall, that could give the equity market some room to run. If they do not, there may be continued choppiness in the market.

Okay, thank you everyone. Remember to visit, subscribe, and follow us on YouTube and LinkedIn at Hart Investment Group. The link to our Daily Financial Heartbeat will be in the caption of this video and in your email inbox if you are subscribed. For our clients, please reach out to me if you have any questions or if you would like to book a review meeting with Ben. Thank you once again for listening, and enjoy the rest of your day. Bye. Thanks everybody. Bye.

Hello everyone. Welcome to the weekly roundup. Today we will cover interest rates, yields, and earnings releases. Hello Ben. Hi Eva. It's looking nice out there today. We're getting a bit of a late nice weather time. So summer is over. Done. Just like that. Another year is true. We have 11 days more of summer, so let's not get rid of it just yet. Okay, we're going to enjoy the 11 days. Exactly.

Okay, we're going to start with interest rates. Oil is back above $100. Bond yields are surging and inflation fears are basically growing again. Does this make a Fed hike next week more likely, and are the markets pricing this in?

Yeah. So I think it's a good place to start and I think a real good question, especially as WH came in with the market view that he was going to cut rates immediately. In the last couple years, we have seen huge flip-flops from the US central bank. He has come in at a difficult time because the world is at war, oil is under pressure, and commodities are having difficulty getting everywhere, so prices are squeezing a bit higher, including copper, which touched a new high yesterday. Coming into the week, we're like a coin toss, 50/50, that they would raise rates next week. The market is pricing a little bit closer to the fact that they'll probably raise. We saw the ECB raise rates today by 25 basis points, but effectively say they'll be on hold now for a little while. It'll be interesting to see because I've read a lot of mixed information. Some people suggest that at Jackson Hole, he effectively said, “I'm not doing anything,” but others interpreted that he's going to increase two times before the end of the year.

From our perspective, and I will comment on inflation as well, from an investment point of view, sentiment seems to suggest a rate increase. So, if he does it, nobody probably cares too much. If he doesn't and holds, then you probably see a bit of a knee-jerk reaction where asset prices move higher, gold probably runs a little bit, and there is a little bit of US dollar weakness. If they raise 50 basis points, that would be a material shock and you would probably get a pretty significant selloff in markets in that backdrop. From a positioning perspective, we're not really doing anything, just waiting and seeing. From a risk-to-inflation standpoint, we're back up to $100 a barrel. To your point, that's not good. At the same time, you're seeing oil reserves continue to dwindle in the US and China, which are the big countries that consume oil and have reserves they're drawing down on. Those reserves have effectively kept oil at $100, because without them we'd probably be at $200. So at $100, yes, it's something to be conscious and cautious of. Higher energy prices are a direct negative impact, or a tax, on the consumer and the world. That will slow economic activity, so I think it's something very important to pay attention to.

Okay. Bond yields are still on the rise. What are the real opportunities? Who are the winners? Who are the losers? What investments are most at risk?

I think that's a great question. Bond yields at these levels continue to look attractive. Everywhere you look around the world, if you're in Australia now and you can lock in and get 5% for 10-plus years, that's pretty nice. In the US, the 30-year is around 5.4% or 5.5% as of today. I think there are opportunities pretty much everywhere across the bond landscape. If you're worried about duration, then only go three to five years. If you're not worried about it and just want comfort, then you can lock in 5, 10, or 15 years out and get rates that we would have loved to get 10 years ago. Rates are looking attractive, especially as valuations get stretched. If you're looking to reposition and take some profits, you can switch into bonds and know that you're going to get a reasonable rate. The fear, of course, is inflation, which we've talked about, but I don't think that's a ginormous risk right now because technology is going to be super deflationary over the next five years.

Okay. Earnings season has started. We're seeing softer sales and cautious guidance from some companies. What does this tell us about the consumer, and is this trend going to persist?

Yes. It's an interesting dynamic. If we look at a lot of the consumer stocks out there, Nike for example has been trading around a 52-week low in the last couple of days. The consumer is under pressure, particularly in the US, which is a consumer-based economy. Higher rates are a direct drag on GDP and the economy. The consumer is under pressure pretty much everywhere in the world, but the US consumer is definitely under a lot of pressure right now. Okay, then let's see the charts.

consumer is definitely under pressure a lot right now. Okay then let's see the charts.

All right. We are recording on Thursday, September 10th, on the eve of 25 years since September 11th, which is tomorrow. Hopefully we'll get a quiet market over the next few days, but the stock market certainly hasn't been happy the last couple of days. I wanted to cover a couple of charts on where the opportunities are in the space. If you look at US long treasury issuance versus the hyperscalers, and for those who do not know, the hyperscalers would be Microsoft, Amazon, Alphabet, Meta, and Oracle. These are the big tech companies issuing debt as well. As we get into 2026, you've seen a huge increase in hyperscalers issuing debt that is competing against Treasury. You're starting to see more money that doesn't want to buy government debt because investors are concerned about government liabilities and are more comfortable and confident with some of the tech companies. Treasury issuance is significantly lower so far this year, but you're seeing the hyperscalers still issuing significant debt. This is through the end of August, but you're starting to see some money chase corporations as opposed to governments.

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This is a big reason why. This is the S&P credit ratings for Canada, the United States, and hyperscalers. Canada is still AAA, one of the few AAA-rated countries still in the world. The US is AA+. When we look at corporations, Microsoft is AAA, Alphabet is AA+, Amazon is AA, and Meta is AA-. We've talked a little bit about the bonds you can buy, including Amazon and Microsoft 30-year paper trading around 55 cents on the dollar. You can buy high-quality corporates that are better rated than US government bonds and offer a big positive capital return. Part of the reason money is shifting is because investors can buy similar or better credit. Corporations are actually in better fiscal shape than governments. Yes, they do not control the printing presses, which is why people sometimes like governments, but the credit quality of corporations is starting to attract more money from both a corporate and institutional level.

This was your question off the top, Eva, about US monetary policy. This is 2018 to where we are today. The neutral estimated rate is the band, and the dotted lines are market expectations currently. The market is saying they will probably raise rates; the timing is what will be interesting to watch, along with what WH has to say next week. In a short period of time, expectations went from nothing neutral to probably raising. A lot of that has to do with the market shifting its view on what was going to happen. We're not seeing it run away to the upside just yet, but there is a slight divergence, and that's impacting how the market thinks about what will happen with rates.

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The last one is US midterm elections, Congress balance of control, and prediction market probabilities. It's interesting to watch and pay attention to. A year ago, split control was pretty high, and now it is down to about a 39% chance. The Democrats have moved from around 20% likely to 46% likely to take full control. Republicans, which were around 20%, did get some positive news out of the gate and then slowly dwindled down to around a 15% to 16% likelihood of retaining full control. The market is effectively pricing in this outcome. Negative or positive market reactions happen when the outcome is different than what the market is expecting. If Democrats take full control, the market is starting to ask what that looks like and how it could impact investors. A real surprise would be a Republican resurgence, which could have a material impact on what the market does from here. Right now, I don't think there is anything material we need to change, but it's good information to consider as we prepare for the midterms coming up on November 4th.

As always, the opinions expressed do not necessarily reflect those of National Bank Financial. Everyone has their own risk and tolerance levels. If there is anything in here that you think is interesting or that you would like to discuss with Eva or me, please feel free to reach out. We're happy to discuss and explain whether any of this could have an impact on you or your portfolios.

Thank you, Ben. What are we looking at next week?

Central banks are probably the biggest news next week. That is on the 16th. We'll see what WH has to say. He's tried to get away from forward guidance, but anytime he talks, he gives forward guidance. It will be interesting to see what the press conference is like and what he says. We'll be watching that, continuing to watch earnings come out, and keeping in mind that September tends to be a choppy month. We've had a couple of down days here, and markets are soft again today. Copper also hit a new high, so copper stocks are getting swung around. We'll watch those to see what the impacts are, but the big show will be the Federal Reserve meeting.

Thank you, everyone. Remember to visit, subscribe, and follow us on YouTube and LinkedIn at Hart Investment Group. The link to our Daily Financial Heartbeats will be in the caption of this video and in your email box if you're subscribed. As always, please reach out to me if you have any questions or if you would like to book a review meeting with Ben. Thank you once again for listening and enjoy the rest of your week. Bye. Thanks, everybody.