Stock futures are relatively muted this morning following yesterday’s strong advance, although another drop in oil prices is providing some support. Brent has fallen back below $100 a barrel, trading around $98 at the time of writing, as two developments offer some relief on the supply front. Iran has signalled a willingness to reopen the Strait of Hormuz if the U.S. eases military pressure and lifts its blockade, while Saudi Arabia has restarted its East-West Pipeline, a key route that allows Saudi crude to bypass Hormuz. The pipeline had been shut earlier this month following drone attacks. Trump will address world leaders at the UN General Assembly this morning, but markets will also be watching whether a meeting with Iranian President Masoud Pezeshkian materializes. Trump has said he is open to a meeting, although none has been formally announced.
Risk appetite returned to markets on Monday, as investors found some relief in lower oil prices and signs that diplomacy may still have a role in the Middle East conflict. The Nasdaq jumped 2.3% to a record close, and the S&P 500 gained 1.5%, its best day since early August, while here at home the TSX eked out a 0.6% gain as weakness in energy shares tempered the broader rally. Tech led the rally, with Meta surging 11.3% after its Muse AI assistant became the most downloaded free app on Apple’s App Store, while Intel gained 12.1% and AMD rose 9.9%. Brent crude fell as much as -4%, as investors responded to tentative signs that negotiations with Iran remained possible. Lower oil prices also eased some of the recent pressure on bonds, with the U.S. 10-year Treasury yield falling back below 5% to 4.96%. For now, markets are taking some comfort from even tentative signs of diplomacy, though they have yet to translate into meaningful de-escalation. And while yesterday’s gains were a relief to investors, we did see weak market breadth, raising concerns that the rally is becoming dependent on a handful of stocks.
Canada getting hawkish too. The Bank of Canada is prepared to raise interest rates if inflation pressures persist, with Governor Tiff Macklem warning about the risk of waiting too long to respond. The Iran war has complicated the outlook by pushing energy prices higher, with Macklem saying inflation could rise further in coming months if oil remains near $100 per barrel after CPI has already been running around 3%. The comments reinforce the BoC’s recent hawkish shift, although officials don’t want to unnecessarily restrain growth if the inflation shock proves temporary. Officials have downplayed the economy-wide impact of the latest U.S. tariffs, noting that affected products represent only about 5% of Canadian goods exports to the U.S., although individual industries could face significant disruption. Still, tariffs could cut fourth-quarter economic growth to below 1%, leaving the central bank balancing weaker growth against renewed inflation pressure.
Canada is looking to build closer ties with the EU as tensions with the U.S. increase, with Mark Carney accepting an invitation for Canada to become the EU’s first associate member (although the exact meaning of that status has yet to be defined). The relationship could benefit both economies, with Europe offering a large consumer market, advanced manufacturing and research capabilities, while Canada can supply energy, critical minerals, and other natural resources. This could also extend into defense and technology, especially as both Canada and Europe look to reduce dependence on the U.S. for security and major digital technologies. Just like in any relationship though, it can be hard to move on from an ex, with Europe unlikely to replace the U.S. as Canada’s primary economic partner. Canada-EU goods and services trade totaled about $180 bln last year, which is only around 15% of Canada-U.S. trade. This new relationship is also long distance, with geography limiting the opportunity because much of Canada’s energy and resource production is located in western Canada, making exports to Europe more difficult and expensive.
Investors are favouring shorter-dated U.S. Treasuries, betting that the Fed’s latest tightening campaign will eventually bring inflation under control and that much of the expected rate increases are already priced into yields. Two-year Treasuries offer their highest yields since 2024 with less exposure to the volatility affecting longer-dated bonds, making the front and intermediate portions of the curve more attractive to fixed-income investors. The main risk now is that energy-driven inflation, resilient economic growth, or other price pressures force the Fed to tighten much more than what is currently priced in, with some strategists warning that the policy rate could eventually exceed 5%. Still, with the two-year yield already exceeding the market-implied peak Fed rate of about 4.68%, investors see short-term Treasuries as offering attractive income while having the potential to provide upside if the Fed wins its fight against inflation.
China is becoming even more dominant in the global rare-earth supply chain, despite the U.S. investing more in developing alternative sources. JL Mag Rare Earth, the world’s largest producer of high-performance rare-earth magnets, has more than 10 times the current production capacity of its closest U.S. competitor and plans to expand capacity another 50% by 2028. China’s advantage also goes beyond mining into refining, and magnet manufacturing, meaning Western countries could develop new mines and still be dependent on Chinese technology and manufacturing. This dominance gives China geopolitical leverage, with rare-earth export restrictions and licenses expected to be a key bargaining tool as it negotiates with the U.S. Demand is picking up as rare-earth magnets become used for EVs, renewable energy, and robotics, which looks to benefit China as planned projects outside China look to satisfy less than one-fifth of future demand.
Here’s something for the cat lovers. Researchers have identified a previously unknown wild cat species in Bolivia, marking the first time a new living cat species has been formally named and described in more than a century. Named Leopardus tilcayo, the small tiger cat lives in Bolivia’s Yungas cloud forests, weighing about three pounds. Researchers analyzed DNA from 38 tiger cats across South America and concluded that what had once been treated as a single species actually comprises five distinct species, with the Tilcayo lineage separating from its relatives 1.4 million years ago. The discovery could have important conservation implications as the area continues to face deforestation, agricultural expansion, fires, and mining, with scientists arguing that more unidentified species could disappear before they have an opportunity to document them.
Diversion: Life hack
