Rising long-term bond yields and elevated oil prices are weighing on risk appetite this morning, with futures pointing lower. The 30-year U.S. Treasury yield hit 5.33%, the highest level since 2007, while long-term yields also reached multiyear highs in Europe as investors demanded more compensation for persistent inflation, expanding government deficits, and heavy AI-related borrowing. Equity futures are down across the board with tech stocks leading the declines. Nasdaq futures are down -1.2% and Nvidia is -1.9% lower in pre-market trading as investors once again question whether massive debt-funded AI infrastructure spending will generate sufficient returns. Oil added to market pressure, with WTI approaching $85 a barrel as renewed U.S.-Iran tensions reduced hopes for a quick reopening of the Strait of Hormuz and reinforced expectations that central banks may need to keep monetary policy tight.
Deadline day. Canada and the U.S. are racing to reach a trade agreement before tonight’s deadline that could trigger a 50% U.S. tariff on roughly $20 billion of Canadian exports, including dairy products, liquor, and hockey equipment. Negotiations remain hung up on autos, with Canada looking for a tariff below 15% while U.S. officials have indicated they will not go beneath the rate applied to Japan and South Korea. Canada is also pushing for relief from U.S. tariffs on steel, aluminum, lumber, and vehicles, while the U.S. wants Canada to unwind retaliatory measures including auto duties and provincial restrictions on U.S. alcohol. While the threatened tariffs would affect only about 5% of Canadian exports to the U.S., with oil and gas exempt, failure to reach a deal could further damage relations with our neighbour to the south and increase pressure on Canada to retaliate. Longer term, the dispute is adding uncertainty ahead of the CUSMA renegotiation, with both countries potentially facing huge economic costs if the trade agreement ultimately breaks down.
Changing currents. Newfoundland and Labrador and Hydro-Québec have reached a tentative 50-year electricity agreement that could reshape one of Canada’s longest-running energy arrangements. The original Churchill Falls contract, signed in 1969 and not set to expire until 2041, allowed Hydro-Québec to buy almost all the facility’s power at 0.2 cents/kWh. As electricity prices rose, Newfoundland and Labrador sought better terms, including through unsuccessful court challenges. The new agreement would terminate the old contract early, raise the price paid for Chirchill Falls power and support more than $50 billion of investment in hydro, wind and transmission projects. It would also give Newfoundland and Labrador long-sought access through Quebec to export up to 985 MW of power to U.S. markets. PM Mark Carney called the plans a “nation-building investment” that could become the largest clean-energy initiative in North American history. A final agreement is targeted by the end of the year.
The S&P 500 Insurance subsector has rallied 21% over June and July as investors rotated toward lower-volatility, value-oriented defensive stocks. The group has since lost some momentum as premium growth has weakened for auto insurers while used-car prices, parts costs, and bodily injury expenses remain elevated. Homeowners and commercial insurance face similar risks with competition pushing pricing lower, potentially setting the industry up for weaker profitability. At the same time, lower interest rates could pressure insurers’ investment income and make the sector less attractive relative to higher-beta areas of the market in a soft-landing environment. With valuations rising quickly despite declining ROE and no clear earnings catalyst, some believe the recent rally may have reached its peak.
Sign of the times? German companies have reduced investment in the U.S. during the first half of the year as uncertainty surrounding the Trump administration’s trade policies weighed on new commitments. Direct investment fell nearly two-thirds from a year earlier to €4.3 billion, the lowest since 2023 and almost 80% below the same period in 2024, according to new reports. The decline continues the trend since Trump began his second term in January 2025, amid tariff threats and uncertainty over U.S.-European trade relations. German investment in the U.S. also remains far below the pre-pandemic first-half average of €15.8 billion. Still, existing German businesses continue to reinvest profits in their U.S. operations, suggesting the market remains attractive even as companies have become more and more reluctant to commit new capital.
China’s economic slowdown deepened last month, with weakness spreading across consumption, investment, and traditional industries even as the tech sector remained strong. Industrial production grew 4.5% year over year, below expectations, while retail sales increased just 0.6%, and fixed-asset investment fell 6.7% in the first seven months. If that wasn’t enough, data also shows that property investment fell 19.2%. On the other hand, AI-related and advanced manufacturing continued to grow, with electronic equipment output rising more than 19%, integrated-circuit production rising 21%, and industrial robot output growing more than 30%. The widening divide has created a K-shaped economy, with strong tech and export demand masking weak domestic consumption, property, and infrastructure investment. With growth potentially running below the pace needed to meet the country’s 4.5%-5% annual target, economists see rising odds that policymakers introduce even more fiscal or financing support in the coming months.
Fun deficit. Apparently, the topic has become serious enough to warrant its own study. A new study found there is a “fun shortage,” as opportunities for in-person recreation and socializing become scarcer and more expensive despite demand for shared experiences. Time spent socializing, attending entertainment and recreational events has declined over the past two decades, with research in the U.S. highlighting the decline in the number of golf courses, bars, nightclubs, movie theaters, and bowling alleys. At the same time, population growth and interest in activities such as golf, travel, concerts and youth sports are increasing competition for limited capacity, pushing up prices and forcing consumers to book further in advance. Expanding supply has been difficult because of high construction and operating costs, geographic constraints, regulation, and challenges facing independent venues. Don’t worry though! There is hope with people now beginning to turn to lower-cost alternatives like hiking and team sports. Turns out, going outside is still free.
Diversion: Who needs enemies when you have friends like these?
