I hope everyone had a great Canada Day and for our American family and friends, Happy 4^th of July. This is going to be a bit of an abbreviated in-between holiday update, but I will start off by saying that anyone that thought the start of the summer was going to be sleepy was definitely proven wrong over the past week. The Canadian government reversed course on the digital services tax (DST) just before Canada Day and U.S. non-farm payrolls came in stronger than expected in June - basically popping the balloon on any thought of a Fed rate cut this month. Meanwhile, Trump’s arm-twisting, whining and dining and primary threats paid off in an 11^th hour win for Trump on his ‘big beautiful bill’. Rather than celebrating this weekend, market participants will likely be spending more time reflecting on just how tumultuous this first half has been and wondering if it gets better or worse from here?

 

PM Carney’s decision to walk back the DST was seen by some as a move that weakened Canada’s hand as we head towards a possible bilateral trade deal with the U.S. by July 21^st. While some viewed it as a strategic gesture to ensure maximum success for Canada in said deal. Regardless, most economists had viewed the tax as poorly designed and perhaps not worth the potential revenue gain considering the existential threat that Trump poses. In hindsight, the second ‘axe the tax’ moment for Canada may not even register with the disruptor-in-chief. 

 

At the time of writing, the White House was apparently in the process of sending letters out to 170 countries, informing them of the level of tariffs that will be imposed on them. This is yet another indication of how unsuccessful the administration has been since ‘Liberation Day’ to get deals with U.S. trading partners. According to the Treasury Secretary, 100 countries will see a basic tariff of 10%, compared with 123 under the original reciprocal tariff plan, and that there will be a “flurry” of deals.  When was the last time you heard that. Bottom line, if you thought that Trump’s trade war was going to be over in time for the second half, you would be wrong. As there was never any real end game to his policy tire-spinning since March, there doesn’t seem to be any foundation of logic behind the latest announcements.

 

 

Keep in mind that even a 10% tariff, if applied to the majority of countries, is still more than three times the average tariff level that existed before Trump took office. And, as I mentioned in a previous newsletter, current tariffs are already starting to seize up global trade. The chart above shows the Canadian trade balance with all countries, and while the May deficit improved to $5.9 billion, this isn’t far off the record set in the previous month. And we are just getting started. If the U.S. economy slows or stalls over the remainder of the year, the combination of weaker demand and the higher Canadian dollar could send the deficit higher.

 

That said, data released this week showed the U.S. has hanging on – for now. The May JOLTS job opening headline came in at 7.769 million positions, which was above consensus and the June Challenger layoffs figure fell by close to half from where they were in May. ADP payrolls for June were, however, extremely weak coming in at minus 33 thousand, but then we got yesterday’s non-farm payrolls report showing an actual increase to 147 thousand. Furthermore, the unemployment rate edged lower to 4.1%. We have seen large disconnects between the two reports before, but this is curious to say the least. One of them is going to be proven to be a false indicator of where the economy really is heading into the summer, but which one?

 

 

From the Federal Reserve’s perspective, this week’s reports did nothing to convince them of the need to lower rates and the July FOMC meeting is now seen as almost completely out of play, meaning the consensus of market participants is that Powell and crew will not cut. Even the September meeting, which only a few weeks ago was seen as delivering a quarter-point rate cut, is now showing less than a 70% probability of such a move based on Fed funds futures contract pricing. This has put a floor under U.S. bond yields going into the week, with the 2-year treasury note back up close to 3.9% as shown in the above chart.

 

Where longer-term yields go will depend on how bond investors view the passage of Trump’s fiscal package. Estimates by the Congressional Budget Office (CBO) still point to a $3-5 trillion increase in the U.S. deficit over the next several years, especially given that the tax cuts for the wealthiest Americans are front-loaded, while spending cuts are spaced out over the fiscal timeline. Far from reducing the large term premium that exists on the U.S. curve, we could see that premium widen.

 

The other thing that could potentially unsettle bond and equity players is the growing concern over Federal Reserve independence as the end of Powell’s term in 2026 draws closer. A survey conducted by UBS Asset Management (as reported by Reuters) showed that two-thirds of central bank reserve managers felt that Fed independence was at risk and that rule of law in general in the U.S. might be in decline. Of the 40 central banks surveyed, 35 also thought that the Trump administration could ask its allies to convert their longer-term debt holdings into zero coupon ultra long maturity bonds. Remember my piece on the Mar-a-Lago piece a number of weeks ago? Well, perhaps the mirage is becoming something more than just a pool-side musing. Click here to view the newsletter.

 

 

 

Given the swings in markets during the first half of this year, it is actually quite astonishing that equities are going into the second half in the green, as the above chart comparing the TSX, S&P500 and European benchmarks show. With the passage of Trump’s fiscal package this week, bulls finally got the tax cut they wanted, and we will have to see how much of a vote of confidence will be displayed when American markets re-open on Monday. They are further away from getting interest rate relief and if the UBS survey is reflective of how international money managers feel, then a further exodus out of U.S. market is possible. The question is whether there will be as much appetite among domestic investors as there for 4^th of July hot dogs to keep a bid under this market.

 

On behalf of the Pyle Wealth Advisory team, have a wonderful weekend.

Andrew Pyle

 

 

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This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2025 CIBC Wood Gundy, a division of CIBC World Markets Inc. Insurance services are available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are available through CIBC Wood Gundy Financial Services (Quebec) Inc.

 

The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc.

Andrew Pyle is an Investment Advisor with CIBC Wood Gundy in Peterborough. The views of Andrew Pyle do not necessarily reflect those of CIBC World Markets Inc.

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