Today
Tariff talk is looking to take a backseat today, with investors turning their attention to Nvidia’s earnings, set to be released after the bell, and July’s PCE inflation report. Nvidia is expected to report revenue nearly double last year’s level, but investors are focused less on headline results and more on the company’s outlook for AI demand and hyperscaler spending. Investors are also digesting the latest U.S. economic data which showed consumer spending stalling in July while underlying inflation rose moderately, giving the Fed additional time to keep interest rates unchanged. Inflation-adjusted consumer spending was flat following strong gains in May and June, suggesting household demand lost momentum entering Q3. The headline personal consumption expenditures price index rose 0.2% from June, while the core PCE index also increased 0.2% and was up 3.3% from a year earlier. Oil is also providing some relief this morning, with Brent falling nearly -3% to about $86, now down roughly -9% for the week, as Iran and Oman work toward restoring shipping through the Strait of Hormuz. With all that on the table, equity futures are mixed this morning with the U.S. slightly lower and Canada barely positive.
Tit for tat. Canada is pushing back on U.S. tariffs, announcing retaliatory tariffs covering about $20 bln of annual U.S. exports after negotiations between the two countries collapsed. The federal government will double existing tariffs on U.S. steel and aluminum to 50% and impose the same rate on products including milk, furniture, clothing, smartphones, and video-game consoles, while other goods will face tariffs of 15% or 25% beginning Sept. 8. The escalation is a change from earlier trade strategies of removing counter-tariffs and making concessions to secure an agreement. Ottawa also unveiled $7.5 billion in assistance for affected businesses, including liquidity support, project grants, expanded employment insurance measures, and $500 million in loans for smaller companies.
Alphabet soup economy. Scott Bessent said that the K-shaped U.S. economy, where higher-income households thrive while lower-income consumers fall behind, is giving way to a more C-shaped economy. Recent data offer some support with lower-income households’ after-tax wages growing 5.2% year-over-year in July, growing faster than higher earners for the first time since December 2024. Data also shows spending from lower-income earners rose 5.4% and spending growth across income groups narrowing. Still, economists have warned that lower-income households continue to be under pressure, with rising delinquencies among borrowers with weaker credit, elevated housing costs, and student-loan repayments weighing on household finances. Higher-income consumers are also becoming more cautious, with experts noting that a stock-market downturn could weaken their spending. If this happens, economists see the possibility of an X-shaped crossover in which lower-income spending temporarily grows faster than spending at the top.
EM equity benchmarks have become more and more concentrated, with the top 10 companies now representing 38% of the MSCI EM Index and the three largest accounting for 28%. TSMC alone represents 15.5%, while tech has grown to more than 40% of the benchmark, making broad EM exposure dependent on semiconductors, AI infrastructure spending, and the global tech cycle. This concentration weakens some of the traditional diversification benefits of emerging markets and makes benchmark-relative alpha more difficult for active managers, as performance is more dependent on positioning in a handful of mega-cap stocks. It also means the benchmark has become less representative of the diverse economic, monetary, and commodity dynamics across individual emerging economies.
Markets are beginning to focus on the U.S. midterm elections, with Democrats currently favoured to overtake at least one chamber of Congress, potentially ending Republican control and creating a divided government. While gridlock traditionally reassures investors by limiting major legislation, analysts warn Trump could respond to a Democratic-controlled chamber with more market-moving executive actions, including tariffs implemented under alternative legal authorities. A major concern is the next debt-ceiling battle, expected around mid-2027, when Democratic control of either chamber could produce extended negotiations and increase Treasury-market volatility and borrowing costs as the deadline approaches. Investors are also concerned about contested or delayed election result, which could increase volatility and pressure risk assets, making a clear and timely outcome that much more important for markets.
Country music icon, Dolly Parton, passed away yesterday at the age of 80. Dolly, whose career spanned seven decades, was one of the world’s most beloved and recognizable entertainers, selling more than 100 million records and writing hits including Jolene, I Will Always Love You, and 9 to 5. She also had quite the business acumen, retaining the publishing rights to I Will Always Love You which proved to be very lucrative after Whitney Houston’s 1992 cover. Beyond music, Parton built Dollywood into a major Tennessee tourist attraction and created the Imagination Library, which has distributed more than 300 million free books to young children. She will be missed by many, rest in peace.
Diversion:
Queen of Country
