Today
Stock futures are lower this morning as Brent crude climbed above $100 a barrel for the first time since July, raising concerns that the U.S.-Iran conflict could disrupt Middle East energy supplies and fuel inflation. Rising oil prices have also pushed Treasury yields higher, with the 10-year yield briefly exceeding 4.8%, adding pressure to equity valuations as investors reassess the outlook for interest rates. With earnings season over and no major economic releases scheduled today, markets have shifted their attention towards geopolitical and inflation risks. Investors are also now awaiting U.S. inflation data later this week for clues about whether energy-price pressures could influence the Fed’s upcoming rate decision.
Making new friends. Mark Carney is speeding up efforts to deepen Canada’s economic and security ties with Europe as the trade war with the U.S. escalates. Canada and the EU are pursuing a broad partnership spanning trade, defense, supply chains, critical minerals, space and scientific research, with officials looking to bring the two sides as close as legally possible short of EU membership. European officials believe the relationship could ultimately become closer than the EU’s partnership with the U.K., while Canada has already become the first non-EU country to join the bloc’s €150 billion military procurement fund. The push is especially important given that Washington responded to Canadian counter-tariffs yesterday with import bans on certain Canadian goods, including new 50% tariffs on a range of products and efforts to restrict Canadian companies from U.S. government procurement. While the U.S. will remain Canada’s dominant economic partner, the widening trade conflict is pushing the federal government to diversify Canadian trade and build deeper strategic relationships with Europe and other partners.
Capex in the U.S. has been an important driver of economic growth, fueled by the AI buildout in semiconductors, computing equipment, and data centers. Still, real business investment is growing at a healthy (but not historically exceptional pace), although investment as a share of GDP is near the upper end of its historical range, suggesting the capex cycle is relatively mature. The expansion is concentrated in AI-related areas, with real spending on computers and peripheral equipment jumping more than 40% year-over-year in Q2, compared with just 3% growth for other equipment. While AI-related investment should continue supporting economic growth, strategists argue that debt-financed spending by hyperscalers will compete with heavy federal borrowing for capital, creating additional upward pressure on corporate borrowing costs and U.S. interest rates.
Global M&A activity remains on track for a potentially record year despite a modest summer slowdown, with announced deal value down about 3% year over year in July and August. Year-to-date transactions are still high, now sitting at roughly $3.5 trillion, leaving dealmakers needing about another $2 trillion by year-end to make a new annual record. Activity picked up immediately after Labour Day, highlighted by GE Aerospace’s $11.75 billion acquisition of Consolidated Precision Products and Tamarack Valley Energy’s $10 billion purchase of Headwater Exploration, while Poste Italiane increased the value of its Telecom Italia offer. The outlook remains constructive, although the U.S. midterm elections and trade uncertainty could weigh on deal activity in the months ahead.
U.S. consumers’ inflation expectations were stable in August, but concerns about the labour market and household finances increased, according to the New York Fed’s Survey of Consumer Expectations. One-year inflation expectations held at 3.6% and five-year expectations remained at 3%, while the three-year measure edged down to 3.2% from 3.3%, although households still anticipated higher gasoline prices. Expectations for the unemployment rate a year from now rose to their highest level since April 2020, while most became less confident about finding new work if they lost their jobs and reported lower confidence in their current and future finances and access to credit. The survey comes ahead of the Fed’s Sept. 15–16 meeting, with policymakers divided over whether to hold rates at 3.50%–3.75% or raise them to combat inflation. August CPI data due Friday could be the deciding factor.
Scott Bessent made an odd threat to traders betting against the yen, saying he has strong insight into Japanese policymakers’ plans and declaring, “I am the house now.” His comments follow unprecedented U.S.-Japan coordination to support the yen, including joint intervention in July, while Bessent has also publicly encouraged the BOJ to raise interest rates rather than rely on repeated currency intervention. The yen has since strengthened toward 153 per USD as markets price in a quarter-point BOJ hike this month and potentially faster tightening thereafter, prompting investors to unwind short-yen positions. Hedge funds are now betting the dollar could fall below 150 yen by year-end, with some longer-term options targeting 140.
To the moon! The University of Waterloo Rocketry Team set a world record at the 2026 Launch Canada Challenge after its Polaris liquid bi-propellant rocket reached 63,497 feet, beating the previous record of 56,590 feet. Polaris, a 17-foot, 300-pound rocket, featured a more powerful engine, optimized vehicle architecture, and a reinforced recovery system designed to withstand ten times the expected deployment forces. Unlike previous launches, Polaris was safely recovered, allowing the team to analyze its onboard flight data for future projects. While making a world record is already quite to accomplishment, there are other benefits to being a part of the Rocket Team, with members and alumni having gone on to opportunities with organizations including SpaceX, NASA, the Canadian Space Agency, and RocketLab.
Diversion: Sailor in the making
