Today
Stock futures are moving higher this morning after a weaker-than-expected July employment report boosted expectations that the Fed will keep interest rates on hold. The
U.S. labour market weakened in July as nonfarm payrolls fell by 23,000, well below expectations for an 80,000 increase, while prior months were revised lower. Despite the decline in employment, the unemployment rate edged down to 4.1%, largely because labour force participation continued to fall rather than reflecting stronger hiring. Average hourly earnings also rose just 0.1% during the month, pointing to easing wage pressures. The report suggests the labour market is losing momentum after showing resilience earlier this year, reinforcing expectations that the Fed may have greater flexibility to keep interest rates on hold or potentially ease policy if economic conditions continue to soften. It was a different story closer to home with
Canada’s labour market strengthening in July as employment rose by 75,100, exceeding expectations, while the unemployment rate fell to a two-year low of 6.4%. The stronger labour market, together with rising hours worked, points to a stabilizing Canadian economy despite ongoing uncertainty surrounding U.S. trade policy and the threat of additional tariffs.
Stuck at the border. Trade tensions between the U.S. and Canada remain ahead of the August 19 deadline for potential 50% U.S. tariffs on roughly $20 bln of Canadian imports, with negotiations continuing but major differences still unresolved. Canada is looking for relief from existing tariffs on key sectors such as steel and aluminum, while the U.S. wants Canada to roll back retaliatory measures, including restrictions on U.S. liquor and auto tariffs. The outcome of these talks will likely shape the upcoming USMCA review, with lawmakers in the U.S. showing support for modernizing the agreement even if negotiations extend beyond current deadlines.
Interest rate hedging activity was on the rise this week after Treasury yields rose, amid expectations that borrowing costs may remain elevated for longer. Much of the demand came from mortgage investors seeking to offset extension risk, as higher interest rates reduce refinancing activity, lengthen the expected life of mortgage portfolios, and increase their sensitivity to further rate moves. To rebalance this risk, investors added exposure through SOFR swap futures, with trading volumes reaching record levels outside of contract roll periods. The activity highlights how mortgage-related hedging can increase bond market volatility by reinforcing upward pressure on Treasury yields, especially as resilient economic growth, strong corporate earnings, and optimism surrounding AI-driven productivity continue to support higher long-term interest rates.
Publicly traded business development companies provided a clearer picture of the private credit market during their Q2 earnings, suggesting the industry has stabilized after earlier concerns. BDCs appear focused on improving portfolio quality rather than returning to strong growth. Managers including Ares, Blue Owl, BlackRock, KKR and Oaktree have been reducing troubled loans, lowering leverage, repurchasing shares, and, in most cases, maintaining dividends, helping lift BDC share prices from their lows despite continued pressure on net asset values. At the same time, private credit firms are directing capital towards larger, higher-quality financings tied to AI infrastructure. While credit quality generally improved and executives noted a more stable investment environment, the outlook for direct lending remains mixed as fundraising, repayments, and AI-related credit risks continue to reshape the market.
Tech-focused hedge funds suffered their worst month on record in July, losing an average of -10.2% as the selloff in AI and semiconductor stocks triggered deleveraging, profit-taking, and margin calls. The losses extended beyond technology specialists, with diversified multi-strategy hedge funds also posting steep declines. Strategists warn that reduced leverage and tighter financing from prime brokers could limit hedge funds’ ability to fuel the tech rally going forward. While recent gains have been supported by strong hyperscaler earnings that reinforced confidence in AI spending, a diminished hedge fund presence could leave the sector increasingly reliant on retail investors, making it more vulnerable to swings driven by leveraged ETFs, options activity, and margin trading.
More “sold” signs. Toronto’s housing market continued to stabilize in July, with home prices rising 0.3% for a second consecutive month as stronger sales and fewer new listings tightened market conditions. Seasonally adjusted home sales increased 3.2% from June while new listings declined 1.5%, suggesting improving buyer demand despite ongoing uncertainty surrounding borrowing costs. Helping improve optimism, recent signs of stronger-than-expected Canadian economic growth and a declining unemployment rate have boosted consumer confidence, which could support further housing activity in the months ahead. Even with the recent gains, Toronto’s benchmark home price remains 4.6% lower than a year ago, indicating the market is still recovering from last year’s weakness.
Business casual, redefined. As Japan experiences another summer of extreme heat, the Tokyo Metropolitan Government is encouraging workers to adopt more casual office attire, including shorts, as part of its Tokyo Cool Biz campaign to improve comfort while reducing air conditioning use and energy consumption. The initiative builds on a long-running energy conservation program launched in 2005 and comes as the country grapples with record temperatures, high humidity, and rising electricity costs, prompting consumers to embrace cooling products such as fan-equipped clothing, handheld fans, and UV-blocking umbrellas. While many employees have welcomed the relaxed dress code, the policy has also sparked an unexpected debate over men’s leg hair, reportedly boosting demand for laser hair removal treatments.
Diversion:
Good to visualize the celebration
