Launch Pad

The U.S. economy grew faster than previously thought in Q1, with annualized GDP revised up to 2.1% from 1.6%, well above economists’ expectations of no change. The upward revision was driven by stronger business investment, government spending, and inventory accumulation, even as consumer spending reported lower than expectations at 0.5%, indicating households remained cautious. Inflation numbers also released this morning, did however, show U.S. inflation accelerating to a three-year high in May, with the Fed’s preferred PCE price index rising 4.1% year over year, while core PCE increased 3.4%, both matching expectations. Despite higher prices, inflation-adjusted consumer spending rose 0.3% from April, indicating households remain resilient even after the recent Iran-related energy shock. Together, the reports reinforce the view that inflation remains too elevated for the Fed to ease policy anytime soon, supporting expectations that interest rates will stay higher for longer, or potentially rise further if price pressures continue. 

The debasement trade, of buying gold, Bitcoin and other inflation hedges while avoiding the dollar, is losing momentum, mostly because investors now view Fed Chair Kevin Warsh as hawkish. Since Warsh was nominated, markets have priced in higher interest rates, a stronger dollar, and a more aggressive commitment to price stability, reversing many of the trends that fuelled gold and crypto gains over the last few years. Real Treasury yields have risen, the dollar has strengthened, and investors have pulled money from gold ETFs as expectations shift from monetary easing toward potential rate hikes. While long-term concerns about government debt, fiscal deficits, and currency debasement still linger, investors are now focused on tighter monetary policy and higher real yields. This has resulted in a rotation away from inflation hedges and back towards the dollar, with strategists saying that Warsh’s commitment to restoring the Fed’s inflation-fighting credibility has become the dominant force driving markets. 

The BoC confirmed that Canada’s economy is weak but noted that it is not in a recession despite GDP contracting for two consecutive quarters. Policymakers noted that a true recession requires a deep, broad, and sustained decline across the economy, whereas current weakness reflects excess capacity, a soft labour market, and one-off factors like lower government defense spending. The Bank expects growth to pick up in Q2 which is why it kept its policy rate at 2.25% but cited the difficult balance between supporting a sluggish economy and preventing broader inflation. Officials emphasized that underlying inflation remains contained, with core inflation measures close to the 2% target and limited evidence that higher energy costs are spreading throughout the economy. Following the recent easing of tensions in the Middle East, Tiff Macklem said upside inflation risks have lessened, giving the Bank more flexibility while it continues to monitor growth and inflation. 

Fire sale. The reopening of the Strait of Hormuz following the U.S.-Iran agreement has shifted global oil markets from fears of shortage to signs of oversupply. A rise of crude exports from the Persian Gulf, combined with weaker-than-expected Chinese demand and earlier strategic inventory releases, has flooded buyers with available cargoes, driving prices lower. Brent crude has fallen below $75 a barrel, Middle Eastern oil is trading in a bearish contango structure, and Angolan crude is selling at its steepest discounts in more than a decade. Although low global inventories still leave the market vulnerable to future disruptions, the immediate focus has shifted towards excess supply, with analysts warning that demand is currently insufficient to absorb the flood of oil coming out of the Gulf. 

Paying it forward. The largest U.S. banks are rewarding shareholders after passing the Fed’s annual stress tests, announcing higher dividends and, in some cases, major share buyback programs. JPMorgan raised its quarterly dividend 10% to $1.65 per share and authorized a $50 billion stock repurchase program, while Goldman Sachs increased its dividend to $5.00, Morgan Stanley to $1.15, and Wells Fargo to $0.50 per share. This year’s stress tests proved that all major banks have sufficient capital to withstand a severe economic downturn, but the results have less regulatory impact than usual because the Fed has frozen stress capital buffer requirements until 2027 while it revises the testing framework. In any case, the announcements highlight the strong financial position of the largest U.S. banks and signal continued confidence in returning excess capital to shareholders through dividends and buybacks. 

Historic run continues. Canada’s 2 to 1 loss to Switzerland was a disappointing end to the group stage, not because advancing was ever guaranteed, but because expectations have risen so dramatically. Despite the defeat, Canada reached the men’s World Cup knockout stage for the first time in its history, a feat that would have seemed ambitious only a few years ago. Finishing second in the group means the team must unfortunately leave Vancouver and its passionate fan base to face South Africa in LA, rather than playing a Round of 32 match on home soil. Injuries to Alphonso Davies and Ismaël Koné undoubtedly hurt Canada’s chances against an experienced Swiss side, but the team remains alive with an opportunity to continue its historic run. Canada returns to action against South Africa on Sunday at 3:00 p.m. Let’s go Canada! 


Diversion: eBike DIY 
 

Copper edged higher, after touching a seven-week low yesterday, as a weakening U.S. dollar and an AI stock rally buoyed sentiment for the metal used in electrification. The upward move came a day after a -2.1% slump on the LME when the prospect of higher interest rates sapped risk appetite.  Industrial metals were under pressure earlier in the week when a rising dollar weighed on  commodities priced in the currency as Federal Reserve policymakers signaled growing support for higher borrowing costs.