| Close
Jul 3 | Close
Jun 26 | Weekly
Change | Net Weekly
Change % |
DJIA | 52,900.07 | 51,876.11 | +1,023.96 | +1.97% |
Nasdaq | 25,832.67 | 26,297.61 | +535.06 | +2.12% |
S&P 500 | 7,483.24 | 7,354.02 | +129.22 | +1.76% |
| S&P TSX | 35,274.84 | 34,980.00 | +294.84 | +0.84% |
Source: Globe & Mail
Hydration Break Recap: Win Some, Lose Some
Douglas Porter, CFA
BMO Chief Economist
Thursday at noon marked the precise half-way mark for
2026—time flies—and it’s appropriate that the day saw a record-high close in
the venerable Dow, as well as arguably the best match of the World Cup so far.
After all, the key market and economic theme this year has been battling
through and ultimately overcoming plenty of adversity. The MSCI All World Index
finished the day with an 11.5% advance since the start of the year, almost
exactly matching the previous six-month tally. Meantime, WTI dipped back close
to $68, not far from its pre-war level in late February.
The conflict with Iran was clearly the new news in H1, and
probably the biggest surprise of 2026 was that oil prices didn’t respond even
more forcefully to the heaviest hit to global crude production… ever. With WTI
never really getting far from $100 and averaging a bit less than that through
the conflict, equities managed to shrug off the shock relatively quickly, and
returned the focus to AI. Gasoline and diesel prices have been slower to
recede, in part reflecting depleted inventories and perhaps Ukraine’s disruption
of Russia’s supplies. In turn, that means headline inflation will be a bit slower
to relent than the rapid-fire pullback in crude prices.
That stickiness in headline inflation will keep central
banks on high alert for some time yet, and it’s why bond and currency markets
have been less willing to quickly shrug off the conflict. Even as oil prices
have fallen abruptly, the lingering impact of the energy shock was higher bond
yields, especially at the short end. One of the biggest fixed-income moves in
the first half was a 65 bp step-up in two-year U.S. Treasury yields, as the
view on the Fed flipped from rate cuts to potential rate hikes. The year began
with deep concerns over Fed independence—highlighted by the investigation into
Jay Powell, and his fiery response. But consensus is calmer now, with Kevin Warsh’s
initial comments as Chair ringing hawkish (or at least not dovish), Powell staying
on as a Governor, and the Administration thwarted in its initial attempt to
fire Governor Lisa Cook by this week’s Supreme Court ruling.
The shifting view on the Fed also pumped up the U.S. dollar,
partially reversing its steep decline in 2025. The dollar flirted with its
strongest level in almost 40 years this week against the yen at around 162 and
is not far from 23-year highs versus the Canadian dollar at $1.42 (or just
below 70.5 cents). Supporting the rebound in the greenback has been a solid
underlying U.S. economy. While payroll growth came in light in June at 57,000,
it averaged +92,000 in the first half compared with almost no net new jobs in
2025 (+10,000 per month). For overall growth, the relentless wave of AI
spending, combined with a consumer backstopped by tax refunds and stock market
gains, has kept GDP clicking a bit above 2%. The resilient economy, paired with
headline PCE inflation above 4% and core above 3%, has the market pricing in
full odds of at least one Fed rate hike by the end of the year.
Our view remains that the Fed will not hike this year, even
with a rollicking equity market, a sturdy economy and above-target inflation.
First, this week’s soggy jobs report and soft consumer confidence were
reminders that while growth has held up well, it’s hardly overheating. More
importantly, while inflation may be slow to recede, it will indeed recede if
oil prices stay anywhere close to current levels. This week’s preliminary June
inflation report from the Euro Area was a true leading indicator—CPI fell 0.1%
m/m, slicing the yearly rate by 4 ticks to 2.8%, while core fell two ticks to 2.4%.
While they will never say it, the ECB may already be having buyer’s remorse about
its rate hike of just three weeks ago. San Francisco’s Fed President Daly may have
put it best this week: “We don’t want to react quickly when the world is
changing quickly.”
Frank and Mark.
Source: Globe & Mail, BMO Capital Markets, Bank of Canada, Bloomberg.
Canada
The TSX gained 0.8% last week. At the halfway mark, Canadian equities are up
11.2%, outpacing the S&P 500 despite less exposure to the AI trade and some
legit economic headwinds. On the latter, it was nice to see the Canadian
recession chatter confidently stamped out ahead of the national holiday. For
the record, we were never in that camp following Q1’s second consecutive
negative real GDP growth print, and the latest readings on growth in April and
May already show the economy bounced back with some vigour to start Q2. As
such, we upgraded our Q2 growth call to 1.8% from 1.0%, with some upside risk
still on the table. That moved 2026 annual growth two ticks higher, to 0.7%.
We won’t discount the challenges facing the Canadian economy
right now, but they are proving manageable. Trade uncertainty continues as the
July 1 USMCA renewal deadline came and went, leaving us with the status quo
—but we’ve long expected this outcome. The residential real estate market is in
recession in parts of the country, but a broader spillover has been well
contained, and some pockets of the market look to be bottoming. And, population
growth turned negative, but this was a requirement to reset net inflows to a
level that is both manageable in the short term, while also providing needed
labour force growth over the long term. But it’s easy to overlook the
positives—and there are a number of sectors supporting the economy right now
with firm growth. Here’s a quick rundown:
Resources: Oil & gas output has expanded 6% in the past
year and almost 5% annualized over the past three years. While not the capex
boom of cycles past, the sector is cranking out cash flow and supporting
incomes. This can be seen at the regional level, where Alberta, Saskatchewan
and Newfoundland & Labrador are likely to lead the country with growth
around 2%.
The AI boom: It’s not the massive wave of capex seen south
of the border, but output in computing infrastructure, data processing and
related services is up more than 10% in the past year—this picks up some AI-
and data centre-related investment. Granted, it is a tiny share of the economy
from a contribution to growth perspective, but it is visible around the GTA and
Alberta, among other areas.
Nonresidential construction: While residential construction
contracts, nonresidential construction is forging ahead. Some of the AI
buildout seeps into these numbers, while many provinces are running aggressive
capital spending programs, and the federal government has pushed to fast-track
major projects of national importance.
Defence: Federal cutbacks have dampened public admin output,
but that masks torrid growth in defence spending. The immediate jump in the
defence budget to 2% of GDP has added roughly $10 billion to the economy this
year, through both increased pay and capital outlays. Output in defence
services is up almost 10% from a year ago.
Finance: Capital markets are on a tear with a record TSX
complemented by strong deal activity. Canada’s financial sector has proven
resilient to the housing downturn and wave of mortgage renewals, while
benefitting from favourable market conditions.
It’s not all boom, but it’s certainly not all doom in
Canada’s economy.
YTD, the TSX is up 11.23%, and the benchmark 10-year yield ended the week to yield 3.43%.
U.S. & Global
Equity markets rose again in this holiday-shortened week.
The S&P 500 added 1.8% before shutting it down for an early weekend.
As the U.S. celebrates its 250th birthday, here are eight
economic reasons to light up the sky.
1. Sturdy economy: Growing 2.7% in the past year to Q1, U.S.
real GDP is not only the strongest since 2024, it is also vastly outperforming
its long-run potential and every other G7 nation.
2. Accelerating productivity: Underpinning both near- and
long-term economic growth, labour productivity among nonfarm businesses rose
2.8% in the past year to Q1, the most since 2024 and well above the
half-century average of 1.9%.
3. Surging investment in all things AI: A key productivity
driver is business investment, particularly in information technology. U.S.
business spending on computer hardware, software and data centres has surged
25% in the past year to Q1 as companies race to build, and benefit from, the AI
interstate highway system.
4. Increased competitiveness: Rising productivity has held
unit labour costs to a modest 0.5% advance in the past year, the smallest
increase since 2019. A low wage bill will not only enhance the international
competitiveness of American businesses but also help contain inflation
pressures.
5. Low unemployment: At 4.2%, the jobless rate is just 0.8
ppts above the 54-year low reached in 2023. True, its decline this year
reflects a shrinking labour force rather than increased hiring (in fact, the
2.1 million person contraction is the most on record outside the pandemic).
Still, layoffs remain limited outside the technology sector, and less
competition will at least improve the odds of finding work.
6. Improved inflation outlook: Now that oil prices have
largely returned to prewar levels, PCE inflation appears to have peaked at just
above 4%. Assuming fuel costs remain contained, inflation could return to the
2% target within one year. That would stay the Fed’s tightening hand and even
keep rate cuts on the table next year.
7. Lighter than usual household debt burdens: At just over
11% in Q1, the share of disposable income devoted to debt payments is more than
one percentage point below the long-run average. And that’s not simply because many
homeowners have locked in record-low mortgage rates. The debt service burden on
consumer loans is also lower than normal.
8. Record equity markets: The venerable Dow Jones Industrial
Average, now 130 years old, is at a record high. Yes, stocks look expensive and
AI enthusiasm is running wild, but earnings growth has been stellar this year
and could benefit from AI-driven productivity gains in the years ahead.
No one really knows what the second half of the year will
bring (after all, few had the Iran war on their bingo card at the start of the
year). But for now, Americans have more good than bad economic reasons to
celebrate Independence Day.
YTD, the DJIA is up 10.06%, the NASDAQ is up 11.15%, and the S&P 500 is up 9.32%. The 10-year Treasury yield ended the week to yield 4.50%.
Source: BMO Capital Markets
The Good:
Monthly Real GDP +0.5% (Apr.)—and StatCan estimates May grew
0.1%; Auto Sales +1.9% y/y (June); S&P Global Manufacturing PMI +0.1 pts to
53.0 (June).
The Bad:
No news is good news.
The Good:
Jobless Rate -0.1 ppts to 4.2% (June)—but lower part rate; Average
Hourly Earnings +0.3%, +3.5% y/y (June); Job Openings edged up to 7,594k (May);
Initial Claims -1k to 215k (June 27 week); Auto Sales +2.8% to 16.7 mln a.r.
(June); S&P Cotality 20-City Home Prices +1.1% y/y; FHFA Home Prices +2.0%
y/y (Apr.); Construction Spending +0.1% (May); Conference Board Consumer
Confidence Index +0.6 pts to 91.2 (June).
The Bad:
Nonfarm Payrolls +57,000 (June)—below expected and prior two
months revised lower; Factory Orders -1.3% (May); ISM Manufacturing PMI -0.7
pts to 53.3 (June).
Source: Associated Press
Australian officials ask fans to respect the privacy of
Neil, a 1-ton seal who respects nothing
WELLINGTON, New Zealand (AP) — Like plenty of local boys
before him, Neil has come home to the stretch of Australian coast where he was
born. Unlike most of them, he trails fame, fans and property damage in his
wake. He is also a 1,000 kg (2,200 pound) elephant seal.
In June, the bellowing and blubbery 5-year-old mammal hauled
himself onto land for his twice-yearly tour of beachside towns in southern
Tasmania state after months of feeding at sea. That’s posing problems now that
he weighs as much as a small car and has a social media following more than
double Tasmania’s human population.
His rampage through local infrastructure has claimed bent
traffic bollards, a sign warning the public about seals and a fence that did
not survive Neil’s attempt to vault it. The rest of the time he lies placidly
any place he likes, which is sometimes the middle of the road, bringing towns
he visits to a standstill.
But officials say their biggest concern is that Neil’s
popularity could lead to ill-advised human-seal encounters that are dangerous
for both sides.
Neil, the only male elephant seal to visit Tasmania in
years, has commanded an enthralled TikTok following of 1.4 million in part
because he acts like kind of a jerk. During this visit to shore, his 12th, his
crimes have included picking fights with parked cars and smashing through
barriers erected to keep him off roads.
Those antics have prompted some online to hail Neil as a
kind of anti-authoritarian hero. But experts say it’s normal experimentation
for a growing seal.
Juvenile male elephant seals need to practice for dominance
battles in which adults rear up and crash their chests together as they compete
for breeding opportunities, said Sophia Volzke, an elephant seal scientist
based at the University of Tasmania in Hobart.
With no other juveniles to practice with, Neil can only
rehearse on Toyotas.
Local officials fear that Neil is the latest wild animal
whose social media stardom has outgrown what’s good for him.
“Neil’s fame is a bit of a double-edged sword,” said Kris
Carlyon from Tasmania’s Department of Natural Resources and Environment, at a
news conference in Hobart on Thursday in which he asked the seal’s fans to give
him privacy.
“We have had some pretty silly behavior, instances with
people carrying their small babies up close to him and simply trying to get
that shot for Instagram,” he said.
Officials have urged the public to refrain from identifying
the town Neil is currently delighting or terrorizing, depending on who you
speak to. They fear a disastrous encounter between the seal and an admirer
could force rangers into a risky operation to move him elsewhere.
Carlyon also warned of worse. In a 2023 episode, a walrus
known as Freya who drew huge crowds in Norway was euthanized after officials
cited a growing risk to human safety.
“There is a risk here of essentially loving Neil to death,”
Carlyon said.
It’s usual for seals to return biannually to the place they
were born to rest, fast and shed fur. Many species roam inland during visits to
shore, sometimes leading them into beachside towns.
What’s unusual about Neil is that he’s the only male
elephant seal hauling ashore in Tasmania.
Sub-Antarctic islands south of Tasmania are home to breeding
populations of elephant seals and Neil’s mother would have arrived from one of
them to give birth, Volzke said. Females have been spotted ashore in Tasmania
before, but topping out at the size Neil reached when he was a year or two old,
they don’t cause the same kind of chaos, she added.
“Humans got rid of those animals and now maybe they are
coming back and repopulating areas that they were previously seen in,” she
said. “We do need to find a way to coexist.”
That could prove tricky for Neil, and for the rangers,
police officers and security guards who follow in his wake. If he survives to
adulthood, Neil could measure up to 5 meters (16 feet) in length and weigh
triple what he does now.
However, about 90% of male elephant seals die before they
reach a breeding age of around 10, Volzke said.
For now, Neil the seal is occupying a stretch of sidewalk,
unmoving and unbothered. Sometimes he canoodles with an orange traffic cone, to
the delight of his online followers. It isn’t clear why he prefers that
location, which he has returned to even after being ushered away by rangers.
“He’s obviously decided this puddle surrounded by bollards,
which are horizontal at the moment, is his spot,” said Carlyon on Thursday.
His fans can relate. The locals have mixed feelings.
“He’s one of our biggest exports at the moment,” said Dale
Creamer, a resident of the town that the seal is currently trashing, who has
not been personally inconvenienced. “It’s Neil’s world and we’re just living in
it.”