Today
Stock futures fell this morning as Brent crude approached $100 a barrel, following further U.S.-Iran strikes, raising concerns that higher energy costs will keep inflation elevated and force major central banks to tighten monetary policy further. Treasury yields are edging higher ahead of a busy week of U.S. government debt issuance, while the yen strengthened to its highest level since February on expectations for additional BOJ rate hikes. Higher energy prices are adding to inflation concerns and pushing global bond yields higher, with markets pricing about a 60% chance of a 25-bp Fed rate hike next week ahead of key U.S. inflation data Thursday and Friday. Trade tensions are providing another headwind as roughly $27.6 bln of Canadian retaliatory tariffs on U.S. goods take effect today. The cautious mood extended globally, with major Asian and European markets declining as investors assess the latest combination of geopolitical and inflation risks.
First day of school tariffs. Canada imposed tariffs of 15% to 50% on roughly $27.6 bln of U.S. goods today, escalating its trade dispute with the Trump administration after negotiations collapsed last month. The measures include raising tariffs on many U.S. steel products to 50% and targeting consumer goods including motorcycles, cosmetics, and cheese, with exporters in politically important states including Michigan and Ohio most exposed. Canada hopes the retaliation will increase pressure from U.S. businesses and consumers on Washington to return to negotiations, although the Trump administration has threatened additional tariffs or even restrictions on Canadian imports. The economic risks are significant for Canada as well, with some experts estimating that existing U.S. tariffs, Canadian retaliation, and related government support could reduce Canadian output by about 0.3% relative to its baseline forecast. Despite the escalation, Mark Carney says Canada remains willing to return to the negotiating table, provided an agreement that a deal protects the competitiveness of key industries including autos, steel, and aluminum.
Equity markets have remained quite resilient despite a global bond selloff, with rising yields so far failing to trigger a broad retreat from risk assets. Strong economic growth and corporate earnings have provided support, while credit spreads remain tight and companies continue to borrow heavily to finance investment, especially the AI buildout. Friday’s stronger-than-expected U.S. jobs report reinforced expectations for a possible Fed rate hike in September, pushing Treasury yields higher and stocks modestly lower, but both the S&P 500 and Nasdaq still finished the week with gains. The impact of higher rates has instead been concentrated in more vulnerable areas like CCC-rated credit, real estate, and small-cap stocks, while energy and financial shares have benefited.
China’s export growth picked up in August, helping the country as it struggles with weak consumption and a prolonged property downturn. Exports rose 25% from a year earlier, led by strong shipments of autos, semiconductors, and other high-tech goods, while imports climbed 28.2% and the trade surplus widened to $119.1 bln from $112.5 bln in July. Exports to the U.S. jumped 34.4%, while shipments to Southeast Asia and Latin America also recorded strong gains, highlighting China’s efforts to diversify its overseas markets. The export boom is helping Beijing move towards its 4.5%-5% growth target without resorting to more aggressive domestic stimulus, but it is also raising concerns among major trading partners about Chinese overcapacity and persistent trade imbalances. These tensions will likely be a key theme during the upcoming Trump-Xi summit.
The Iran war is creating risks for investors that extend well beyond higher oil prices, as geopolitical tensions reshape global capital flows and contribute to rising borrowing costs. Gulf countries that have traditionally invested heavily in western markets are now directing capital toward domestic spending, infrastructure, and security. This comes as U.S. tech companies require more and more financing for AI infrastructure, with some estimating that roughly US$4.1 tln of an expected $5.5 tln in global AI spending through 2030 could come from debt markets. That borrowing will compete with heavy government issuance, including about $9 tln of U.S. Treasuries due to mature within a year, potentially keeping bond yields elevated and putting pressure on highly valued equities.
The Trump administration is increasing it public pressure on Fed Chair Kevin Warsh to avoid raising interest rates ahead of the Fed’s Sept. 15–16 meeting, with the Trump administration calling for rates to remain unchanged or be cut. Markets are pricing roughly a 60% probability of a 25 bp hike after the U.S. added a stronger-than-expected 162,000 jobs in August, although wage growth remained relatively contained at 3.1% year over year. The administration argues that strong economic growth and investment are expanding productive capacity without generating inflation, while Fed officials remain concerned that price pressures are broad and have continued to stay above the 2% target. Warsh has maintained that political pressure does not influence Fed decisions and has emphasized inflation risks, noting that more than half of the components in the PCE price index recently increased by more than 3% annually. With this in mind, Friday’s CPI report could be the deciding factor in determining whether policymakers raise rates or hold steady.
Tourism destinations in the U.S. are stepping up efforts to lure Canadian visitors back as political and trade tensions continue to weigh on cross-border travel. New York has introduced discounts for Canadians, while some Las Vegas hotels are even treating the Canadian dollar at par with the U.S. dollar. Despite the efforts, the outreach has yet to reverse the decline in travel. Canadian residents made 25% fewer return border crossings and spent about $3.3 billion less on U.S. travel in 2025 than a year earlier, with weaker exchange rates and higher travel costs only adding to the recent political backlash. While cross-border traffic improved slightly around the World Cup, data is pointing to another downturn for tourism. The coming snowbird season will be the next big test, with some surveys finding that many are planning on staying away until the end of Trump’s term.
Diversion: No snooze option here
