Today
New inflation data this morning gave investors another look at the war’s inflationary impact. April PCE, the Fed’s preferred inflation gauge, showed headline prices rose 0.4%, slightly less than the expected 0.5%, while y/y prices rose 3.8%, in line with expectations but still well above the Fed’s 2% target. Separately, fresh GDP data pointed to a moderating U.S. economy with first quarter U.S. GDP revised down to 1.6% from the 2.0% initial estimate. Markets are also digesting fresh developments in the Middle East after U.S. forces reportedly struck Iranian targets following Tehran’s launch of drones toward ships in the Strait of Hormuz, according to U.S. officials. Similar to earlier U.S. operations this week, the administration characterized the strikes as defensive rather than an escalation. Amid the back and forth, both sides continue signalling a willingness to pursue a diplomatic path to end the conflict and reopen transit through the Strait. Stock futures, including the S&P 500, are modestly lower this morning, putting the index on track for its first decline in more than a week, while oil prices are rebounding and unwinding part of yesterday’s decline.
Holding up well. Canadian bank earnings are coming in ahead of expectations, supported by resilient capital markets activity, stronger-than-expected domestic banking performance, and manageable credit trends. Bank of Nova Scotia and Bank of Montreal both topped analyst estimates, with BMO benefiting from strong capital markets and U.S. banking results, while Scotiabank saw better-than-expected performance in its Canadian and international banking divisions. National Bank of Canada also beat expectations, driven by strength in capital markets, wealth management, and lower-than-expected credit loss provisions, though shares fell as investors pointed to the bank’s relatively rich valuation heading into earnings season. At the same time, banks continue to flag areas of caution, including softer loan growth, consumer stress tied to higher rates and energy costs, rising insolvencies, and ongoing macro uncertainty. Despite those concerns, management teams remain relatively constructive on medium-term profitability targets and continue returning capital through dividend increases. Earnings season continues this morning, with Royal Bank, TD Bank and CIBC all reporting before the open (see co. news below).
Someone is not going to be happy. Canada has selected Sweden’s Saab GlobalEye system over U.S. based Boeing and L3Harris for its next-gen airborne early warning aircraft, evidence that Ottawa is serious about reducing reliance on American military suppliers. The Saab surveillance system will be installed on Bombardier Global 6500 jets built in Canada, with Ottawa promising domestic production, aerospace jobs, and future export opportunities. Canada is also reconsidering its purchase of U.S.-made F-35 fighter jets, a decision that has already created friction with Washington. Critics note the Royal Canadian Air Force reportedly preferred Boeing’s E-7 system because of interoperability advantages with the U.S. military, highlighting the tension between operational alignment, industrial policy, and geopolitical diversification.
Banxico cuts its outlook. Mexico’s central bank cut its 2026 growth forecast to 1.1% from 1.6%, over concerns that trade uncertainty, weaker investment, and geopolitical tensions are beginning to weigh on the economy. Mexico’s economy contracted 0.6% in the first quarter, with manufacturing softening, services losing momentum, and consumer spending weakening. Banxico warned that investment is likely to remain sluggish at least into the second half of 2026 as uncertainty surrounding U.S. tariffs and the upcoming USMCA review continues to pressure business confidence and nearshoring ambitions. The central bank also flagged additional risks tied to Middle East tensions and supply-chain disruptions, while domestic political reforms under President Claudia Sheinbaum have added to investor caution. Looking ahead, Banxico expects conditions to gradually stabilize, with growth forecast to recover modestly to 2.1% in 2027, though much will likely depend on the future of North American trade relations.
Bigger is better. The U.S. ETF market may be heading for a wave of fund closures as thousands of small, unprofitable products struggle to gain traction. According to Morningstar, nearly 40% of U.S.-listed ETFs now manage less than $50 million in assets, with many generating too little revenue to remain economically viable. The problem accelerated after the SEC’s 2019 “ETF Rule” simplified and lowered the cost of launching new ETFs, triggering an explosion in product creation across thematic, active, and niche categories. Launches have since far outpaced closures, creating what some see as a crowded market. Analysts believe many low-asset funds launched during the post-2020 ETF boom could eventually be shuttered as issuers rationalize product lineups and investors favour larger, more liquid strategies with scale advantages.
K-shaped consumer. Despite softer U.S. consumer confidence readings and rising jet fuel costs tied to the conflict in Iran, airlines including American Airlines and United Airlines say travel demand remains resilient across premium and international bookings. The comments add to evidence of a K-shaped economy, where higher-income consumers continue to spend on experiences and discretionary travel even as inflation and higher energy costs weigh more heavily on lower-income households. Airline executives also pointed to stronger pricing conditions, premium seating demand, and limited industry capacity growth as helping offset to offset rising fuel expenses, with both carriers expressing confidence in maintaining strong margins into next year.
Feeling hot. Staying on the topic of travel, if you have a European summer sojourn coming up, this may not be the kind of preview you were hoping for. A spring heat wave is sweeping across Western Europe, with the U.K. and France (see French Open conditions) seeing temperatures climb into the mid-to-high 30s and break century-old records, levels normally seen in peak summer rather than May. London recorded a rare “tropical night,” where temperatures failed to fall below 20 C, while France, Spain, and Italy also experienced high temperatures tied to a so-called “heat dome,” a weather pattern trapping hot air over Europe. For those staying in Canada this summer, the outlook appears more manageable. The Weather Network’s forecast suggests El Niño could lead to a more varied pattern across the country, with fewer prolonged heat waves and more interruptions from showers and cooler stretches, particularly across Southern Ontario, Quebec, and Atlantic Canada, while the West is still expected to run warmer. Nationally, the forecast points toward a simmer more than a full-on sizzle. Either way, after a long winter, most Canadians will probably welcome a few good summer weekends whenever and wherever they can get them.
Diversion: He knows what he wants
