Equity markets are showing some signs of optimism as they balance strong corporate earnings against persistent geopolitical and inflation risks. While impressive results from companies like Alphabet and other large-cap firms are helping offset concerns around the Iran conflict and elevated oil prices, markets remain highly sensitive to any escalation that could push energy prices higher. Markets are also getting a boost after strong economic data which showed the U.S. economy expanding at a solid 2.0% annualized pace in the first quarter of 2026, underscoring continued resilience. Growth was supported by steady consumer spending and business demand, suggesting the economy remains fundamentally strong even as inflation pressures persist. Canada’s economy is also showing some resilience, with Q1 growth tracking at a 1.7% annualized pace after contracting late last year. Expansion has been driven primarily by manufacturing, wholesale trade, and resource production, reflecting strength in goods-producing sectors even as broader uncertainty from tariffs, higher energy prices, and geopolitical risks persists. The data suggests both economies are holding up better than expected, giving the BoC and Fed flexibility to maintain their current policy stance.
Holding patterns all around. The Bank of Canada held its policy rate steady at 2.25% yesterday, with officials signaling that current rates are appropriate for now, though future moves will depend on how inflation, oil prices, and external risks evolve. While the bank expects inflation to temporarily rise towards 3% due to energy costs, it still forecasts a return to target over time and continues to mostly look through the immediate oil shock. Still, officials made it clear that persistently high energy prices or broader inflation spillovers could force rate hikes, while worsening trade disruptions or weaker growth could justify cuts. The Bank of England also held interest rates steady at 3.75% this morning, echoing many of the same concerns as the BoC. Governor Andrew Bailey emphasized that while current policy is appropriate given the U.K.’s soft economy, sustained energy disruptions or stronger second-round inflation effects could require tighter monetary policy.
Powell staying put. While the Fed also held interest rates steady yesterday, investors were more interested in the drama unfolding behind the scenes. The meeting revealed division among members, with four dissenting votes highlighting growing disagreement over the future path of policy. Chair Jerome Powell maintained a cautious hold citing persistent inflation and stable labour conditions. At the same time, some officials pushed for cuts while others opposed even signalling future easing, underscoring uncertainty around inflation’s staying power. Powell also signaled he may remain on the Board beyond his chairmanship as leadership transitions to Kevin Warsh, potentially preserving some continuity during a politically sensitive handoff.
The euro-area economy is showing signs of stagflation as growth slows while inflation accelerates, largely due to soaring energy costs from the Iran war. Q1 GDP growth across the euro zone was weaker than expected, while consumer inflation jumped to 3%, complicating the policy outlook for the European Central Bank. Rising raw material and energy costs are beginning to spread through the economy as companies pass higher expenses onto consumers, even as business activity and demand weaken. Following the GDP print, ECB officials kept interest rates unchanged at 2%, choosing caution as it assesses the full economic impact of the Iran war, rising energy prices, and growing stagflation risks across the euro zone. While inflation has accelerated, driven largely by energy costs, policymakers remain hesitant to tighten prematurely given weakening growth and rising recession concerns. The ECB emphasized a data-dependent, meeting-by-meeting approach, signaling that rate hikes remain possible, particularly if inflation extends beyond energy, but for now officials are prioritizing flexibility amid all of the uncertainty.
Canada defence bank. According to a Globe and Mail report, Canada has reportedly been selected to host a new multinational Defence, Security and Resilience Bank following the conclusion of negotiations in Montreal among 19 countries. The proposed institution would provide long-term, low-cost financing for defence projects across NATO members and allies, with potential expansion to roughly 40 participants. Key elements, including membership, governance, and leadership, remain unconfirmed, and some countries are reportedly not participating. Questions are being raised around overlap with existing defence financing programs. More formal details are expected as governments move toward an official announcement. Stay tuned.
AI gone rogue. An AI agent powered by Anthropic’s Claude model has deleted a company’s entire production database, leaving customers unable to access key data. The issue, impacting PocketOS, highlights the operational risks of deploying autonomous AI agents in critical production environments without the proper safeguards. The coding agent also deleted the company’s backups during the routine task, causing widespread service disruption for customers. The incident highlights concerns around current AI infrastructure, particularly the lack of confirmation layers, permissions controls, and fail-safes for destructive actions. Luckily, after a few days, the data has been recovered but it’s safe to say the AI agent isn’t getting a promotion any time soon.
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