Bank of Canada Governor Macklem announced a rate cut of 25 basis points, bringing the key policy rate to 2.75% due to tariff-related economic uncertainty. The Bank has cut rates seven times in nine months, totalling 225 basis points.
In the United States, major stock indices had mixed results, with the Dow declining while the S&P and NASDAQ rose. The US Federal budget deficit reached -$307 billion, and crude oil settled at $67.68.
Us Inflation Trends
US CPI showed a yearly rise of 3.2% and core CPI increased by 3.1%, both below expectations. Wage growth improved slightly but did not lead to significant real income gains.
The US Treasury sold $39 billion in 10-year notes at a yield of 4.310%, indicating strong demand. Mixed results were seen in currency markets, with the USD losing ground against the CAD.
European equity markets showed positive movement amidst tariff-related news, except for Spain, which fell. Crude oil prices increased, while gold and Bitcoin also rose.
Macklem’s decision to lower rates by 25 basis points reflects efforts to address economic strains arising from trade-related pressures. With seven reductions over nine months amounting to a total of 225 basis points, the direction has been clear. Monetary easing seeks to provide relief where confidence has weakened, yet adjusting expectations remains just as necessary.
Meanwhile, US markets presented a divided picture. While the Dow retreated, both the S&P and NASDAQ instead found strength. Such divergence highlights shifting sentiment, with certain sectors benefiting from lower inflation readings while others remain tethered to broader fiscal concerns. The federal deficit, which expanded to -$307 billion, suggests a financial position where government spending remains stretched. This may shape future rate expectations, as fiscal policy leaves monetary authorities with fewer options.
Inflation figures in the US pointed downward. CPI increased annually by 3.2%, while core CPI, which removes volatile components, came in slightly lower at 3.1%. Both fell short of forecasts. Despite wage growth showing slight improvement, purchasing power gains have not followed in a meaningful way. Real incomes have yet to experience a rise that justifies stronger consumer confidence. Market responses suggest that inflation fears are easing, yet whether this continues depends on wage trends in the months ahead.
Demand for US government debt remains healthy. With $39 billion in 10-year Treasury notes auctioned at 4.310%, investors displayed confidence in a stable return. Fixed-income markets signalled that participants expect inflationary pressure to continue slowing. Meanwhile, foreign exchange markets presented contrasting outcomes—weakness in the US dollar against the Canadian dollar pointed to shifting rate expectations, particularly given Macklem’s moves.
European Market Reactions
Across Europe, investor sentiment leaned positive despite ongoing trade-based concerns. Even as Spain’s equities struggled, broader movements favoured upward momentum. Commodities reflected such mood shifts as well. Oil climbed, and alongside it, gold and Bitcoin followed suit. This suggests that some capital rotated into traditional hedges, while others saw room for speculative value.
With rate expectations adjusting, asset price movements should remain closely tied to inflation data and fiscal positioning. Investor behaviour suggests confidence in monetary authorities managing growth while still attempting to rein in excess inflationary pressures. Yield sensitivity persists, but should recent inflation trends hold, adjustments in positioning may continue in a familiar direction.
