U.S. and Canadian stocks are pointing to a higher open this morning, although likely not enough to erase the week’s losses. Yesterday, the Dow, S&P 500 and Nasdaq fell -1.3%, -0.9% and -1.0%, respectively, while the TSX fared better, slipping just -0.1%. Walmart added to the pressure, falling more than -9% after reporting its slowest U.S. sales growth in over six years. Bond yields have been a source of unease, with the 30-year Treasury easing from a 5.31% peak earlier this week to around 5.25% this morning, while the 10-year sits near 4.7%. Treasury Secretary Scott Bessent doesn’t seem done tinkering with the long end of the curve, saying Treasury has a “big toolkit” and signalling a greater focus on fiscal consolidation. While stocks have recoiled from this week’s bond volatility, gold and silver have not, rallying despite elevated yields that would typically weigh on non-yielding assets. Fiscal concerns appear to be winning that tug-of-war for now, bringing precious metal buyers back. See Commodities below for more details.
Bitcoin, meanwhile, is having a good week. The cryptocurrency has surged more than +20% to above $77,000, up from $63,000 at the start of the week. The rally gained momentum Wednesday when Bessent’s intervention pulled long-term Treasury yields lower, easing pressure on risk assets and helping trigger a move into crypto. Positioning then added fuel to the fire, with about $2.7 billion of crypto short positions liquidated in a short squeeze. Sentiment received another boost Thursday from a last-minute push by the White House and crypto industry leaders to advance the Clarity Act, although its chances of passing remain uncertain. Crypto-linked stocks have also joined the rally. Despite the enthusiasm, Bitcoin remains well below its January high of nearly $98,000 and last year’s record above $126,000, putting this week’s impressive rebound into some perspective.
Deadline closing in. It’s been a busy week of trade talks for Canada and the U.S., with the federal government appearing willing to accept some continued U.S. tariffs in exchange for trade certainty, betting that stability will help revive weak Canadian business investment. While details of a new trade agreement are scarce, the new deal would reduce U.S. tariffs on Canadian steel, aluminum, and autos while Canada would remove retaliatory duties, avoiding an escalation that economists estimated could put roughly 90,000 Canadian jobs at risk. While some are pushing for better terms, dealmakers have signalled that more predictability would encourage companies to resume capital spending after years of weakness, with non-residential business investment having fallen to roughly 11% of GDP from about 14% in 2014.
Switzerland and China have stepped up their trade agreement, eliminating tariffs on 99.8% of current Swiss exports to China, improving on their existing free-trade agreement. Major Swiss exports, including watches and pharmaceuticals will become fully duty-free, while Swiss investors will receive easier access to the Chinese market, helping companies diversify as uncertainty continues around U.S. trade policy. China is already Switzerland’s third-largest trading partner after the EU and U.S., with bilateral trade totaling about 34 billion Swiss francs last year. The agreement is another sign of how China is looking to deepen economic ties outside of the U.S. amid its growing rivalry.
Consumers in the U.S. remain resilient but are becoming more selective as high prices, slower wage growth, and dwindling savings put pressure on household budgets. Walmart, Target, and Home Depot all reported sales gains, but shoppers are on the hunt for discounts, buying fewer items per trip, and avoiding purchases for major projects like home renovations. Walmart cut prices on more than 11,000 products during the quarter, while Target saw back-to-school sales rise nearly 20%. Spending has been helped by earlier tax refunds, stock-market gains, and a relatively stable labour market, although consumers are beginning to draw on savings and credit. Economists expect real consumer spending growth to moderate from a 3.2% annualized pace in Q2 to about 2.1% in Q3, pointing to a gradual slowdown rather than a quick drop.
Will earnings justify high valuations? The Canadian big banks are reporting next week, with analysts expecting another strong quarter, helped by strong capital-markets activity, although elevated valuations may make it difficult for strong earnings alone to drive share prices higher. Credit conditions remain a potential pressure point as unemployment and sluggish domestic growth weigh on consumers, although analysts generally expect provisions for credit losses to remain manageable and not prevent double-digit EPS growth. The bigger concerns are valuations, with the Big Six now trading at roughly 16 times expected earnings versus a historical average of 11.3 times. On average, shares have gained 13.7% since Q1 earnings and with expectations already high, investors may need more than strong capital markets beats for shares to rise.
The reckoning continues. China Evergrande founder Hui Ka Yan was sentenced to life in prison after pleading guilty to eight charges including fundraising and securities fraud, misuse of funds, illegal deposit-taking and bribery. The court also ordered the confiscation of Hui’s personal property, fined Evergrande 8.82 billion yuan, and its Hengda subsidiary 7 billion yuan, while dozens of other people linked to the company received prison sentences or fines. Evergrande’s collapse, after accumulating roughly $300 billion in liabilities, added to China’s property crisis and left homebuyers, investors, and creditors with huge losses. Hui’s sentencing, however, does little to resolve those financial losses, with Evergrande’s liquidation taking longer than expected, with only about $255 million of assets sold as of last August against roughly $45 billion in creditor claims.
So bad, it’s good. Chinese animated film Niu Lai has become an unlikely box-office success after going viral for what viewers have called the worst animation to ever appear in theaters. Created over five years by a mother-son team with no professional animation experience, the “film” apparently cost just $200 and has earned more than $4.3 million since its August 5 release, more than 15,000 times its production budget. While curiosity about the film’s terrible animation initially drove ticket sales, viewers are now going to just support the family behind the movie. In terms of box-office return relative to budget, Niu Lai has now surpassed extremely profitable low-budget films including The Last Broadcast, One Cut of the Dead, Paranormal Activity, and even this year’s breakout hit Obsession. This could just be the start, with the film still in theatres and expected to expand internationally.
Diversion: Wrong mouse
