Stocks are feeling a bit more upbeat this morning, with Nasdaq futures leading gains across U.S. and Canadian markets, helped by strength in chip and AI-related stocks. Lower oil prices are also helping sentiment, with Brent back to $101 a barrel after touching $109 last week. The retreat has eased some of the inflation concerns that accompanied the spike in crude and drove expectations for further rate hikes. Hopes for diplomatic progress on the Iran war are also providing some relief. World leaders are gathering in New York for the U.N. General Assembly this week, providing an opportunity for talks and de-escalation, with Iranian President Masoud Pezeshkian due to address the gathering Wednesday. Diplomacy is also in focus on the U.S. China front. Officials from both countries met in New York on Sunday ahead of Thursday’s meeting in Washington between Trump and Chinese President Xi Jinping,4 part of Xi’s first state visit to the U.S. since 2015. The two sides agreed to establish a formal dialogue on AI risks and discussed extending their one-year trade truce. No agreement was reached on the truce, with rare earth supplies still a sticking point, but the talks suggest both sides are looking to maintain some stability in the relationship.
Canada is drawing more international investor interest with several major asset managers considering higher allocations to Canadian equity. Last week’s investment summit in Toronto attracted about 300 business leaders representing $120 tln in capital, with discussions focused on Canada’s fiscal position, resources, workforce and new investment incentives. The centerpiece of the pitch was an expanded investment tax write-off which the government estimates will reduce Canada’s marginal effective tax rate on new business investment from 13% to 6.4%, the lowest in the G7. Foreign capital flows are already improving, with $7.2 bln flowing into Canadian equities in July and roughly $211 bln entering Canadian assets over the past year, although much of the earlier demand was concentrated in government bonds. International investors are beginning to see opportunities from Canada’s improving growth outlook, resource base, and efforts to speed up infrastructure developments. Investors are also beginning to rotate capital from U.S. equities, with Canadians selling a record $31 bln of U.S. shares in July after heavy buying during the first half of the year. Risks remain, however, with the ongoing U.S. Canada trade dispute continuing to weigh on the outlook.
Companies in the U.S. are becoming more squeezed from tariffs, rising fuel and commodity prices, and higher interest rates. All these factors have increased costs across manufacturing, transportation and retail, with smaller and more leveraged businesses most exposed due to their dependence on short-term financing. Capital-intensive sectors like manufacturing, logistics, and commercial real estate are also feeling the pressure as they face both higher operating and borrowing costs. Larger corporations are better insulated by strong cash reserves and longer-term debt, making pricing power an important dividing line between companies that can protect margins and those that risk losing customers through higher prices.
The U.S., Denmark, and Greenland have reached a security agreement that expands Washington’s role in Greenland while preserving Danish sovereignty and Greenlanders’ right to self-determination. The pact gives the U.S. what Trump described as permanent control over security, including the ability to block other countries from establishing military bases, while stopping short of transferring ownership of the island. The U.S. is expected to expand its military presence, although details, including the location and capabilities of new bases, funding arrangements, and what Greenland receives in return remains up in the air. The agreement appears to resolve, at least for now, the nearly two-year dispute that had strained relations between the U.S. and its NATO allies after Trump pushed for control of Greenland. While Trump will likely position this as a huge (or as he’d say “Yuge”) win, the agreement for the most part resembles rights the U.S. already holds under a 1951 agreement with Denmark.
Canada and France are deepening Canada-France ties across defense, energy, space and advanced technology as Canada looks to reduce its economic dependence on the U.S. Over the weekend, Mark Carney and French President Emmanuel Macron agreed to expand cooperation between their space agencies and defense ministries while pursuing closer partnerships in telecom, critical minerals, quantum computing, satellites, and climate resilience. The talks are just one part of Canada’s pivot towards Europe, with Carney supporting the prospect of closer formal ties with the EU. Energy security is becoming another important component of the relationship, with France interested in securing additional Canadian LNG, oil, and critical minerals as the Iran war disrupts global energy supplies.
Turning to Japan, strategists continue to be bullish on Japanese equities, saying that a strengthening yen should not derail the market as long as Japan’s economy and corporate earnings continue to improve. Earnings growth (and not currency weakness) has been the more important driver of Japanese stocks this year, with forward earnings nearly tripling from their pandemic lows. Earnings strength has been broad-based, but especially in sectors like financials, industrials, and tech, with financial companies benefiting from the end of negative interest rates and higher yields. Strategists also see Japan’s strong non-technology performance as an advantage if the global technology trade cools.
Beyond the markets, Japan faces a much longer-term challenge. Japan’s aging population is straining the country’s pension, healthcare, and labour systems, with the number of residents aged 100 or older now surpassing 100,000. Japan has 107,677 centenarians (nearly 90% of them women) while low fertility rates mean the working-age population available to support retirees continues to shrink. One-third of Japan’s approximately 120 mln residents receive public pensions, and the health ministry has requested about $218 bln for pensions and medical care in the next year, accounting for 25% of total government budget requests. The aging population is also increasing demand for elder care, with Japan estimating it will require 2.4 mln care workers this year compared with 2.1 mln in 2024. To address the labour shortage, the government is recruiting foreign care workers despite Japan’s traditionally restrictive approach to immigration, with the demographic imbalance looking to be a long-term fiscal challenge for the country. Aging isn’t easy
Diversion: Oops
