Stock futures are on the decline this morning after a hotter-than-expected January producer price index reinforced concerns about lingering inflation. Producer prices in the U.S. rose 0.5% in January, exceeding expectations and marking the largest monthly gain since September, driven largely by higher services costs. Core producer prices, which exclude food and energy, jumped 0.8% on the month, well above forecasts and the biggest increase since July. On an annual basis, headline PPI climbed 2.9%, while core prices advanced 3.6%, both topping estimates and signaling persistent pipeline inflation pressures. The stronger-than-expected data suggest that inflation remains an issue, potentially complicating the Fed’s interest rate path.
Canada’s economy contracted at an annualized rate of -0.6% in Q4 2025, a steeper decline than expected, as a drop in business inventories weighed on growth. The weakness was partly offset by resilient household consumption, stronger exports, and a rise in government capital spending (particularly on defense), while domestic demand overall rose 2.4%. For 2025 as a whole, real GDP grew 1.7%, the slowest annual pace since the 2020 contraction, reflecting the drag from U.S. tariffs and softer investment. Residential construction fell -4.4% in the quarter, though business investment in non-residential structures increased 2%, and consumption expanded at a 1.7% pace. With January growth estimated to be flat, and the policy rate held at 2.25%, the data suggests a slowing but not collapsing economy, as policymakers balance trade-related headwinds against inflation risks.
AI hedge? Investors are beginning to hedge against a potential drop in the S&P 500, with the cost of downside protection rising to multi-year highs amid concerns over AI disruption, trade policy uncertainty and geopolitical tensions. However, some strategists see this pessimism as a contrarian bullish signal, noting that historically, heavy hedging and cautious positioning often precede rallies. Indicators such as low investor leverage, reduced retail participation and elevated demand for short-term hedges suggest investors are defensive, which could leave room for upside if risks ease, particularly if geopolitical tensions fade or tech earnings restore confidence. Some analysts believe a renewed rally led by mega-cap tech stocks could push the S&P 500 above the key 7,000 level, forcing sidelined investors back into the market, though ongoing geopolitical risks and weakening retail engagement mean stronger catalysts may still be needed to sustain a rally.
Crushing it. All of Canada’s Big Six banks beat first quarter earnings estimates, supported by broad-based revenue growth across retail banking, capital markets, and wealth management. Recapping the results, RBC reported adjusted EPS of $4.08 versus $3.84 expected, with strength across personal banking, commercial lending, and markets. Adjusted ROE came in at 17.8%, though provisions for impaired loans were modestly above forecasts. TD delivered adjusted EPS of $2.44 versus $2.25 expected, driven by solid performance in both Canadian and U.S. retail operations and capital markets. ROE of 14.2% exceeded its medium-term target, with restructuring efforts continuing to support expense discipline. CIBC posted the largest beat, with adjusted EPS of $2.76 versus $2.38 expected, nearly 16% ahead of forecasts, alongside record revenue across divisions and ROE above 17%. BMO also topped expectations, earning $3.48 per share versus $3.22 forecast, benefitting from strength in U.S. banking and trading, while credit provisions came in below estimates. National Bank rounded out the group with adjusted EPS of $3.25 versus $2.95 expected, boosted by its Canadian Western Bank acquisition, which drove double-digit revenue gains in personal and commercial banking, supported capital markets strength, and prompted an increase in its 2026 ROE target alongside an expanded share buyback program.
Behind closed doors, Canada-U.S. trade talks are apparently more constructive than the public rhetoric suggests, at least according to trade minister Dominic LeBlanc who described negotiations over the United States-Mexico-Canada Agreement as cordial and productive. That contrasts with comments earlier this week from U.S. Trade Representative Jamieson Greer calling for higher tariffs. Either way, there is growing acceptance that access to the U.S. market will carry a higher cost. Most Canadian exports remain exempt under USMCA rules, keeping Canada’s effective tariff rate near 4.9%. Political volatility in Washington remains the wildcard, including the risk of late-stage intervention from Trump, as we saw when tensions flared over Ontario’s Ronald Reagan television ads. The agreement, however, remains in force unless all parties decide otherwise. Meanwhile, Ottawa is signalling a broader push to diversify trade ties beyond the U.S., aligning with Prime Minister Mark Carney’s strategy.
Europe is pushing China to allow the yuan to strengthen against the euro as a condition for expanding trade, saying that China’s currency remains undervalued in real terms and gives its exporters a major competitive advantage, especially after Europe’s production costs rose significantly while China experienced flat or falling prices. European leaders, including German Chancellor Friedrich Merz, have emphasized that currency imbalances, subsidies and trade distortions have contributed to China’s record $1.2 trillion global trade surplus and a widening deficit for countries like Germany, where imports from China have risen while exports have fallen. Although the yuan has risen modestly against the dollar, it has remained largely unchanged against the euro, resulting in a roughly 40% real competitiveness shift favouring Chinese producers, prompting European officials to warn that stronger trade ties may depend on yuan appreciation to ensure fair competition.
That upgrade may cost you. The global smartphone market is expected to shrink 12.9% this year to about 1.1 bln shipments due to a severe memory chip shortage driven by rising demand for AI hardware, which has drained supply and pushed component costs higher. The shortage, projected to last into at least mid-2027, is forcing manufacturers to eliminate low-end models, reduce specifications and focus on more profitable premium devices, marking a significant shift in the industry. Rising DRAM and NAND prices are hurting lower-cost Android brands, while premium phones like Apple’s iPhones are better positioned to absorb the cost increases. Experts caution that even as supply conditions normalize, memory prices are unlikely to revisit prior lows, suggesting higher costs for smartphones going forward.
Mad Max is coming back. Max Scherzer is returning to the Toronto Blue Jays on a one-year, USD$3 million deal with up to USD$10 million in bonuses tied to innings pitched. The decision had a personal angle, with Scherzer sharing that his eight-year-old daughter wrote a note to the team after last year’s World Series run saying how much she loved the city and hoped they would return. The 41-year-old went 5-5 with a 5.19 ERA in 17 starts last season and made three postseason appearances, including a memorable Game 4 of the 2025 ALCS when he famously convinced (there was some yelling/growling involved) manager John Schneider to leave him in with two outs in the fifth, then struck out the next batter to end the inning. He now joins a rotation expected to feature Dylan Cease, Kevin Gausman, Shane Bieber and José Berríos, reinforcing what should remain one of Toronto’s strengths as it pushes to contend again in 2026.
Diversion: Deep Clean
