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Economic Impact

In order to help keep you informed and stimulate your thinking with regards to the current financial context, Stéfane Marion and Denis Girouard take a look at economic news and share their perspectives via our monthly informative videos.

September 2, 2025

June 11, 2025

Hello everyone, welcome to Economic Impact. It's September 2nd, 2025, and as usual, I am with our friend and Chief Economist Stéfane Marion. Hello Stéfane.

Hi Denis.

Well, it's been a while since the last meeting, but you know, things are pretty good on the stock market.

It's been a while, but it's been eventful and one thing that you know not too many people expected, myself included Denis is the great performance of global equity markets up 10% year to date. Every region of the world is delivering positive returns. Note Denis that the second-best performing index among the main regions is the Canadian one, up 15%. So, again, we weren't expecting this, but I have to say, Denis, people were saying there's going to be a tariff war. It hasn't been a tariff war. It's been unilateral U.S. protectionism because U.S. is imposing tariffs, but there's no retaliation or very limited retaliation from other parts of the world. So, it's not your textbook tariff war. Maybe that explains the perspective, you know this performance of the stock market saying well maybe the global supply chain is not entering tremendous uncertainty, which I'm not certain about.

Yeah, at the same time, when you're looking at the economic news, it's kind of disturbing because you look at the GDP in Canada and it's not that good.

OK, so based on current news, can you justify 15% for Canada? GDP is not doing so well. I know a lot of people are saying, well, it's proven to be resilient. GDP is just down 1.6%. Consumers are still spending, but gross domestic income, which looks at all the revenues generated in Canadian economy, that was down almost 3%. That's the worst we've seen since COVID. So obviously, Denis, if people have less money and corporations are generating less revenues at this point in time, you could probably say that this might lead to an underperforming economy yet in the second half this year. So, Q2, there's not much of a rebound in place, I think for the second half of the year at this point in time. 

And at the same time, we see that the labour market is not that great now.

No so the GDI is the most correlated one with labour markets. So, less revenues in economy, generally speaking, that means corporations will invest less and they won't hire as much. So, diffusion unemployment right now, there's only 35% of corporations that are actually hiring, so below 50%. It's a figure we haven't seen outside periods where the economy is still in contraction. So again, great performance of the stock market, but it's mostly based on expectation as opposed to current news, which is not so good, but it does open the door for rate cuts by the Bank of Canada.

OK. But talking about expectation, you know, since the last time, Mr. Carney is doing a lot of announcements, you know, to promote and to give more money to the economy and the investing and a lot of sectors and it's quite unusual too.

Yeah, it's automatic about making Canada investable again because we've had no growth in business investment for the past 15 years. So, one thing, one of the big news, that’s been announced since we last met: deregulation. So, Mr. Carney is looking at this, looking also at valuing, putting more emphasis on natural resources, perhaps selling LNG to Germany, for example. But importantly, going forward for the stock market, the new commitment to spend up to 5% of GDP and defence spending, something we haven't seen since the Korean War, is a big deal Denis because it probably leads to a period of reindustrialization for the Canadian economy. So, in essence, that would mean that we transform our resources here in Canada and manufacture some of these resources. So, that might be why the stock market is performing so well as opposed, you know, to just, you know, current news. 

And maybe Mr. Carney was listening to you, because way back then, you know, you showed us a slide where, you know, the Canada industrial base was one of the lowest from the country.

So, the message we've been conveying to the authorities is that you can't be the 7th largest economy in the world and you're having a manufacturing sector that's 18th in the world, which means you're not, you're basically exporting raw resources to the rest of the world and you're shrinking your manufacturing sector. So, this is why there's a made in Canada solution to reindustrialize Canada. And maybe we can leverage what we want to do on the military side to promote an increase in manufacturing. Our manufacturing sector is just too small. If we can get a system where we can get a procurement to Canadian industries to boost their defence spending, that could be good for the Canadian economy and sustain the valuation of the stock market.

And that's probably what the stock market is telling us right now.

There could be some of that.

Maybe.

Yeah.

OK, now we need to talk about tariffs because it's, you know, we're talking about that everyday almost. What's the impact of the tariffs?

So, again, it's not a tariff war. It's unilateral protectionism. There was a meeting between China, India, and Russia this weekend. They want to change the supply chain. At the end of the day, I understand that the Q2 earnings season was better than expected globally and in the U.S. Denis. But note that it's only in the second quarter, at the very end of the second quarter, June to be precise, that the U.S. started collecting tariffs on a significant scale and it's increasing now. And so, the impact, the true impact of tariff collection, it was more likely to be observed in the third quarter, in the fourth quarter of this year as opposed to the first half of this year where they were announced, but they weren't collected.

And for the inflation, you know, we're expecting inflation to rise its state quite at the same level, you know, 3% for a while.

So, there's a belief in the market there and there's been tariffs. There's been no impact on inflation. Well, it's only starting now Denis and the latest news on inflation suggests that, the July numbers suggest that, you know what, over the past three months, core inflation is running at 3%. The 12-month change is actually accelerating at this point in time. So, you're well above the target, you know, normally, the 2% target that, you know, the central banks are looking at. So, it's going to make it hard for the Fed to cut rates. They will be cutting rates in in the weeks ahead, but how much can they cut when inflation is accelerating?

Yeah. And at the same time, you know, we're seeing peak in long-term rates.

So, you're absolutely right. If the bank, if the central bank cuts rates and the long end of the curve becomes de-anchored because they're not sure about, you know, whether the Fed's going to be politicized and what type of, there's a lack of discipline in government spending right now. What is unusual, and you have to go back, way back Denis to see the last time that the Fed was reducing interest rates and yet the 30-year bond yield is moving higher. And that's a global phenomenal: lack of discipline at the fiscal level in many countries, but the U.S. running a deficit of 6%. This will be important to watch Denis. This will be a key driver for financial markets in the months ahead.

Then we can see a steepening of the yield curve. 

Definitely a steepening under these circumstances. You're right.

OK, before the end, we need to talk about currency, especially the greenback.

So, you're talking about a potential steepening of the yield curve, maybe long-term rates moving higher at a time where 30% of the entire U.S. bond market is held by foreigners. Denis, if they're skeptical about your outlook about inflation, your commitment to keep inflation at 2%, you're going to shun the U.S. dollar. It's exactly what's happening right now. And U.S. dollar at a cyclical low. I think there’s scope for more downside, Denis, at the end of the day. So, that would mean, yeah, you know, the price of U.S. dollar alternatives be it gold alternative assets, even commodities, might be a lot more resilient because of this U.S. dollar depreciation. So, the point being Denis that we haven't seen the last of this tariff policy on the impact of financial markets. So, we've had no volatility or very little volatility this summer. I can't guarantee you the same for the next few weeks, next few months. So, let's be prudent. That's seasonally, that's not an easy season for financial markets or the stock market. The long end of the curve will be important to watch.

OK, Stéfane, our last meeting you were quite optimist. Are you still very optimist?

I'm, you know, from a Canadian perspective, I'm still optimistic in a sense that Ottawa has finally deployed policies that might be more structural in nature and good for the economy. But this type of stimulus won't come before 2026. So, I'm optimistic that we're going in the right, moving in the right direction, but doesn't mean there won't be any volatility in the weeks and months ahead. I need to tame the long end of the curve for global financial markets. And then Ottawa, I need to deliver on the fiscal plan and the budget won't come before later this fall.

Well, thank you, Stéfane, and thank you all of you who are listening to us. But above all, don't miss our next meeting early October. Thank you.

Hello, everyone. Welcome to Economic Impact. Today, it's June 11th, 2025 and as usual, I am with our Chief Economist, Stéfane Marion. Hello, Stéfane, a little bit different today, a lot of structural change and we want to talk about it.

Well, we hope to keep people interested, but you're absolutely right that we'll mix a bunch of stuff that's cyclical versus structural, which makes the story more interesting, I think. But let's start with the cyclical dynamics that we've seen, we're seeing in U.S. so, well, we've said many months ago that, maybe US corporations would start reacting negatively to the uncertainty created by the tariff structure in the U.S.. And what we've seen in the latest jobs report in the U.S. is that corporations are still hiring if you look at the redline Denis, but they're not hiring full time. So, they're not committing their capital full time, whether it's human capital or physical capital, not investing right now. So, it's not just Canadian corporations that are struggling to understand the new dynamics, but we're seeing it in the jobs report. So, this sets the stage for slower growth in the U.S. in the second half of this year.

This is what you call uncertainty for the future. And you don't want to have a full-time employee, you prefer to have a part-time employee that, if things are going bad, you know, it's easier to lay off people.

You don't want to commit until you actually understand what your business model will be like say the next six months or next year.

But the equity market is doing well, not new high, but despite of that, you know there's good news.

So, let's put things in perspective. You're right, not doing badly in recent weeks. It's a recovery, but U.S. stock market is one of the only ones that's not back to its previous highs. So, there's still this level of uncertainty created by, there's high valuation in the U.S., we're talking about structural adjustment to the supply chain. Companies are not committing capital right now. So, the U.S. market is coming back, don't get me wrong, but it's one of the few markets that's not back to an all-time high.

Yeah, but that performance is probably only linked because of U.S. investors. Because when you look at the greenback or the U.S. dollar, it's not doing well at all and keeps going down.

So, it's been driven by U.S. investors, the recovery, because foreign investors, you're absolutely right, they're still shunning U.S. assets, whether it's the U.S. bond market or U.S. equity markets. It's not that they're not buying, but they're not buying as aggressively. And that's clearly apparent on the exchange rate in the U.S., which is struggling this quarter. It's one of the largest depreciations in over five years, down 3.5%. So, it means central banks are less active in buying U.S. assets, but also private investors. So that's, you're absolutely right, you know, the perception of U.S. investors versus U.S. economy explains why the U.S. stock market has struggled so far this year.

Yeah. And if you go up north in Canada, the story is totally different. Our stock market is at a new high right now.
Despite the fact that we have a 7% unemployment rate now and which is a massive difference with the U.S. at 4.2%. The stock market in Canada is at new highs. And Denis, I think that's a reflection that everybody understands that we are challenged cyclically right now with the uncertainty on tariffs. But at the same time, what we understand also is, since the federal election, the Prime Minister, well the throne speech was actually read by King Charles. But there's a commitment from the federal government to focus on the Canadian economy on the scale that we haven't seen in many, many years. So, people are saying, well, if I don't really like U.S. assets, I don't understand. I clearly understand that the federal government in Canada wants to be pro-growth. And that's, you know, there's, you know, there's this wind of optimism that is blowing north of the border.

And for this time around, it's not just oil and gas that's doing well, it's a bit widespread in the economy.

Yeah, so when we saw the stock market doing very well in 2000, it was mostly the energy sector. But, with this commitment of the federal government to reindustrialize the nation, that means, you know, more corporate lending, attracting capital, we're open for business. Then obviously, under these circumstances, you can understand that, you know, the financials of the Canadian banks are at a new all-time high. Having said that, it's still not a one trick pony with only the banks. We have industrials doing well, materials, consumer discretionary. People believe that there will be new structural policies deployed in Canada to close the valuation gap that we've endured with the U.S. for over a decade. So again, Denis, this is a structural change. Understand, we are cyclically challenged. Let's be careful in the months ahead. But structurally, there's something different happening in Canada. That's how powerful this can be when policymakers decide to become pro-growth.

Yeah, and the consequences of that, Canadian dollar is going higher because now you have probably Canadian investors, but foreign investors buying in Canada.

Well Denis, that's the flip side. I think if people are interested in your assets, the currency will do well. So, the Canadian dollar's appreciating about the most in four years. So, we were concerned earlier this year about Canadian dollar depreciation. But with the throne speech that we saw, the commitment to be pro-growth for the Canadian economy, these are words until now, but maybe the actions will speak for themselves in the next few quarters, but this is very powerful and it's driving a stronger Canadian dollar. So, might be a source of frustration for exporters, but clearly there's demand and that's an improvement in our terms of trade right now.

And you know, on the same path, Mr. Carney says that I want to invest more money in defense and, and that's kind of good military expenses because you have to build the economy around that. But it's not only building tanks, and it's helping the whole economy.

So, the commitment is to grow the economy, but at the same time to be an active participant within NATO because right now we have the lowest military expenditure in the G7, which means that we are struggling as a nation. Now, the commitment to increase our military complex is very, very important. So, to me, that speaks volumes to the government's commitment to do so. But if you do so, and with a Buy Canada Act, all of a sudden, I have more leeways to improve our industrial structure.

And the next slide will show that we need to invest in our economy. You know, you've been saying that for months and years now. And when you compare ourselves, there's a lot to do.

Oh, Denis, you know, on manufacturing, we've been atrophying our manufacturing so much that, you know, now for the first time ever, our manufacturing sector is smaller than Ireland, which is a population of 5,000,000. So, we need to do a lot better there. And I think that I can be hopeful that with this new procurement system, we can actually kick start manufacturing, and that means reindustrializing our nation.

And you've been discussing that in the past. You know, there's so much regulation in Canada. But once again, the next slide, you know, speak by themself, we need to do something.

It's a big slide, but all you need to know, Denis, is that the federal government is responsible for 320,000 regulations, in manufacturing alone at 110,000. So, it doesn't cost much for the federal government to show the example and say, in order to deploy private capital in Canada, I'll make it easier. I will slash the regulatory requirements that we have, which are one of, some of the most punitive in the industrialized world.

And that's excluding provincials and municipalities.

No provinces, no municipalities on that. So, but if the federal government shows the example, all of a sudden, Canada becomes more investable. So, to me, that's a structural change that would be extremely conducive to this growth and evaluations, the discount that we've been dealing with for the past decade can go away. This is, you know, structurally speaking, as I said, I mean, these are probably the most, the best news we've had from Ottawa. If we can tackle regulations as well as the other commitment that you have, I can only be more optimistic for our country going forward.

Well, Stéfane, this is a change from the past few months and not only few years about Canada, but it's the first time we were seeing your optimism about Canada. And it seems that also, you know, the investors and the foreign investors are, then more to come I believe.

The next challenge Denis is the upcoming G7 meeting. If Mr. Trump, if Mr. Carney can show that he gets along with Mr. Trump and then it looks like we can commit to a trade agreement in the next few quarters, I think people will become even more interested in Canada. So, you know, the words have been put out there. Now we need to see the actions and if there's a commitment to come up with these actions and after G7 meetings, all of these things could make us even more positive for Canada so hopefully when we see each other later this summer, we'll have better news for the Canadian economy. But things look up right now despite the fact that we are cyclically challenged, there's good news, structurally speaking.

Well, thank you very much, Stéfane. Thank you all for listening to us and we'll see you in a few weeks. Thank you.

Property Perspective

Hello everyone and welcome to this November 28th edition of Property Perspective. Today I have the pleasure to be with Matthieu Arseneau, hello Matthieu. 

Hi Simon. 

And with Andrée Desrosiers. 

Hello Simon. 

Hello Andrée. Our topic of the day, what's best for my mortgage, a fixed or a variable rate. But before we enter that interesting discussion with Andrée, let's talk with Matthieu about recent economic news that influence the real estate market. So Matthieu, a number of events have occurred since we last spoke, all of which have an impact on the economic outlook, obviously. First, what are the implication of the Republican sweep in the US presidential election for economic growth and interest rates? 

Yes, this was a big event and there will be application for that for Canada over the next four years. Higher uncertainty, we saw that with the announcement of potential tariff on Canada. We'll see. But clearly, in my mind, the big event and this has implication for the housing market in Canada, particularly for interest rates. It's the fact that there could be much more fiscal stimulus South of the border given the promises of Trump during the campaign. As you can see on that chart, while the Congressional Budget Office was expecting roughly 6% of GDP deficit, which is already very high, it could be as high as 8% if all those promises are realized by Mr. Trump. So at the moment the Federal Reserve is trying to calm inflation in the US, calm the economy. There's government that could support growth over the next few years. So before the election, the Federal Reserve started to decline rates. They did already 75 basis points. But you can see that at the same time it didn't mean that longer term rates decline. In fact, it increased because of risk of tariffs and its implication for inflation because of stronger growth, though that's something we have to keep in mind. And the problem with that increase is given a global correlation in interest rates, when you have the largest economy in the world supporting the economy and having those rates it has an impact on rates in countries with economies not as strong as the US and has to cope with those increases. And that could be difficult for a couple of other economies in the world given the increase of those of those rates. So big implication and that has implications for Canada as well. 

Very interesting Matthieu, so the ability to lower the prime rate in the US now looks more limited. What about Canada?

In Canada, so we saw that in fact for investors expectation for the policy rate in the US, it was expected at 3%. Now it's much more closer to 4% by the end of next year. So clearly investors revised their optimism for rate cuts in the US. In Canada, the situation is clearly different in our view when you look at the labour market here, I'm showing the jobless wait for the prime age workers, the 25-54, it has continued to increase over the past few months. And that's diverging with the US and it's now its highest since 2017. And we don't see stabilization over the next few months given the hiring intention of corporations. So for us that's a sign that the economy has cooled significantly and this is reflected in inflation. When you look at services, core services excluding shelter in the US, it's running at 4.4% because they didn't have that weakness that we got in Canada, it's so it's running at 1.3%. So clearly inflation is under control here. So yes, we expect the Bank of Canada to continue to decline rates. Prior to recent announcements, we were expecting policy rate as low as 2% by the end of next year. But given the transfer that was also announced by the federal government, it could lead to upwardly revise a bit. We'll see if it will be implemented. But clearly as you can see on that chart, while Bank of Canada is declining rates, 10 year rate is increasing and is essentially in its last two years average at this point. So not that much relief for long term rates. So that's something to keep in mind. But for that reason, perhaps it's another reason for the Canada to try to push down those rates by having short term rates very low. So that's our expectation at this time, OK.

Matthieu, the government has announced recently an additional break on population growth for the next three years. What are the implications of this new announcement on the real estate market?

We talked about it very often over the past few months. Housing shortage is still very acute in Canada. We see that in the rental market with rent still increasing at a tepid pace. Same thing for first time home buyers. It's where affordability is still a problem. So I think it's the good decision to calm down population growth. In fact, with the recent announcement about the declining non permanent resident to 5% of population over a 2 year. Reducing permanent resident temporarily, that will lead for— when you look at the five year period, when we look in 2028, the pace for the next 5 years will be similar to what we had prior to the pandemic level, much more sustainable and much more in line with our capacity to welcome. So, I think it's a good decision at this point given housing shortage. And we have to keep in mind newcomers have problems to integrate the labour market in the current context. So let's fix that situation and get back to normal after this three-year period of slow growth and we will be able to get back to the model we had that was benefiting the Canadian economy prior to the pandemic. 

So finally good news. Thank you, Matthieu for your very interesting comments. Let's now discuss with Andrée, hello Andrée. In the context of the anticipated drop of the interest rate by the end of this year and obviously in 2025, should we go with a fixed rate or variable rate for our mortgage?

Very good questions Simon and indeed very relevant. The choice between a fixed rate and a variable rate for a mortgage depends on several factors, especially in the context of falling rates. Our risk tolerance, financial situation and short and mid economic outlook are key, you know, considerations to look at. We must first understand the bearish rate context, however, When the Bank of Canada lowers its prime rate, financial institutions typically adjust, you know, their mortgage rates in response to that downsize. Variable rates will generally follow primary fluctuations and become particularly advantageous in the short term. Fixed rates, although often higher than variable rates at the time of subscription, offer protection against potential future increases. We must however remember that they usually follow the interest rate on long term bonds and not the Bank of Canada prime rate. Therefore, a quarter point drop in the prime rate does not mean that fixed rate will fall by the same amount. 

OK. We must therefore understand this context carefully before making our decision. You're right, Andrée. Many people assume that when there's a drop in the prime rate, all rates fluctuate in the same way. However, as we have just seen, that isn't the case since different rates are influenced by different factors. With that in mind, Andrée, what are the advantages of one or the other? 

Yeah. If we look first, you know, at the variable rate, you should consider that rate if you believe that interest rates will continue to decline or stay low for an extended period of time. You can also choose the variable rate if you're comfortable with some level of risk and can handle or afford, you know, potential payment increases if rates rise. Also if you want to benefit from lower penalties, if you decide to pay off your mortgage early or switch lenders. Also, some variable rates loans offer the option to switch to a fixed rate if rates increase. On the other hand, you should consider, you know, a fixed rate if you prefer stability and want to avoid uncertainty, if you think rates might rise in the midterm and again, if your budget cannot accommodate sudden increases in monthly payments.

So once again, Andrée, the choice does not automatically go towards one or the other. Even if we are in the context of falling rates. As you mentioned, we must make sure to take other elements into account in our decision. You are very right Simon. And we must also not forget that some lenders offer mixed rate mortgages, you know, part fixed, part variables. So this approach allows you to balance the advantages of both options and reducing risk while still benefiting partially from falling rates. So in summary, you know in a falling rate environment, a variable rate may seem more advantageous in the short term, but it remains a bet on future rate trends. If you're comfortable with some uncertainty, a variable rate could maximize your savings. However, if peace of mind is your priority, a fixed rate is the safer choice. It all depends like usual on your financial profile and financial goals. To help you in your choice as usual, do not hesitate to consider or consult a mortgage specialist to assess your personal situation and provide you the right advice for that choice. 

Thank you Andrée for sharing your insights. As you suggested, having a discussion with a mortgage specialist will help make the right decision. There's no point about that. So thank you all for watching and join us again very soon for our next edition of Property Perspective.

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