From Resilience to Rotation

Markets Adjust to Cooling Growth and Shifting Flows

As the global economy slows beneath the surface, markets are entering a new phase. While the data still shows resilience, investors are beginning to respond to shifting trends in growth, interest rates, and capital flows.

• Economic Overview

• Currencies

• Interest Rates

• Gold

• Copper & Oil

• Equities

Overview

After a stronger-than-expected spring, global economic momentum is softening. In the U.S., recent strength in consumer and business spending was largely front-loaded, many accelerated purchases ahead of new tariffs. That temporary lift is now fading, and with it, some of the positive momentum in growth.

Meanwhile, Canada continues to hold up relatively well. Inflation in essential goods like food and energy is easing, and steady wage growth is supporting consumer confidence. These tailwinds are helping cushion Canada’s economy from global pressures - for now.

Currencies: The U.S. Dollar Is Losing Its Grip

The U.S. dollar has started to weaken, and that’s a meaningful shift. Several emerging economies, which used to send large amounts of trade dollars back into U.S. assets like government bonds, are now doing less of that. Less demand for the dollar often leads to weaker performance against other currencies. But in the short term, extreme bearish positioning could support the U.S. dollar. Fig. 1

If this trend continues, the Canadian dollar and the euro may benefit. Estimates suggest the Canadian dollar could approach 78 U.S. cents by the end of 2026, while the euro could move closer to $1.23 - levels that better reflect their longer-term value. Fig. 2 This currency realignment may also help support investment returns in markets outside the U.S.

Commodities and Bonds: What Prices Are Telling Us

BONDS:

Interest rates remain high, but there are signs of change. Central banks are cautious about cutting too soon, especially with labour markets still holding firm. But as growth slows and inflation cools further, bond markets may start to reflect expectations of future rate cuts. If hiring in the U.S. slows significantly - especially below 100,000 new jobs a month - bond yields could start falling more noticeably. Fig. 3

GOLD:

Gold continues to serve as a reliable hedge. Although prices have come off recent highs, demand remains strong due to lingering uncertainty, a softer dollar, and expectations that interest rates may begin falling in the U.S.. We see gold holding up well, especially as investors look for safe, stable assets.

COPPER AND OIL:

Copper markets remain well-balanced if global visible inventories are any guide. That said, tariffs could suppress demand. Oil prices look likely to stay range-bound as markets assess the impact of OPEC + supply increases and slowing demand growth prospects.

“Gold remains a reliable hedge as investors seek safe, stable assets.”

Equities: U.S. Looks Full; Canada Looks Better Balanced

Stock markets, especially in the U.S., are close to pricing in a best-case scenario. The S&P 500 has little room for disappointment given current earnings expectations and valuations. Any softness in growth or earnings could lead to more volatility. Fig. 4

Canadian equities, on the other hand, look more reasonably priced, if only relative to U.S. equities given similar profit margins. In absolute terms, the S&P/TSX has recently hit new highs and now trades above historical averages. But global central banks are cutting rates and governments increase their spending, hence high odds of a growth reacceleration in 2026. If the global economy avoids a hard landing, Canada’s market could see further gains as investors start incorporating 2026 earnings in their valuation models. Fig. 5

Conclusion: A Pivotal Turn, Managed with Intention

Markets are adjusting. We are moving into a world shaped by regional opportunities in a context of growing monetary and fiscal supports. Global growth is slowing, but not collapsing. In this environment, Canadian assets are showing quiet strength - helped by stable fundamentals, supportive policy, and relative value.

For investors, this means staying alert to change. Bonds and gold offer stability in the near term. Equities still offer opportunity - but selectivity matters. As always, a flexible and diversified approach is key to navigating what could be a turning point in the global investment cycle.