2025-10-18
[BNN Bloomberg, Ryan
Bushell - Canada]: It is highly unusual to see strong equity market performance
without corroboration from the underlying economy.
So, what is driving
markets higher?
In our view, four key
themes explain current strength in North American equities:
1. Currency
debasement and fear of acceleration
Investors are seeking
refuge from fiat currencies by buying equities and gold, echoing points from
our last commentary.
Real estate would
normally participate as well, but valuations remain stretched following the
interest-rate bottom during the pandemic.
Rising asset prices
often reflect not just stronger fundamentals but a weakening denominator—the
depreciating of the dollar, yen, or euro.
Concerns about
chronic fiscal deficits in the West, driven by entitlements, healthcare,
military spending, and poor demographics, limit governments’ ability to fund
ongoing obligations through taxation.
2. Bubble dynamics in AI and gold
History is full of
speculative booms sparked by transformative technologies: railroads,
automobiles, the “Nifty Fifty,” Internet 1.0, and now AI. These technologies
changed the world but also destroyed large amounts of investor capital. AI is
likely no different.
Recent circular
financing between chipmakers and their customers recalls the excesses that
preceded the 2000 tech crash, detailed in the graphic below:
While we see less
evidence of a gold bubble, its rapid rise, outsized role in Canadian market
gains, and growing institutional interest, suggest momentum chasing is
underway.
3. Coordinated
central bank easing
In 2025, five major
central banks—including the Federal Reserve in the U.S. and the Bank of
Canada—have cut rates, with more easing expected.
Since the “Greenspan
Put” in 1987, investors have treated central bank easing as an “all-clear” to
buy equities, especially outside deep recessions. This was reinforced after the
2008–2009 financial crisis and again following the 2020 pandemic.
Falling yields on
deposits and short-term instruments including guaranteed investment
certificates (GICs) are pushing more capital into equities seeking return,
particularly amid fears of currency debasement and inflation.
4. Rising energy
demand and electrification
Structural shifts in
trade, climate, transportation, and AI are fueling demand for power.
Utilities and energy
infrastructure are typically defensive sectors that are sold to purchase
riskier assets during a market rally. Their strength, alongside technology and
gold, has amplified equity market gains this year.
In summary, the themes above are propelling markets higher in 2025 despite clear signs of economic weakness. Falling rates reinforce the perception that central banks stand ready to intervene, but we question whether monetary policy is losing effectiveness after such heavy reliance in recent decades. Many consumers and businesses (particularly U.S. homeowners with long-term fixed mortgages) have already locked in low rates, muting the stimulative impact of further cuts. Housing stagnation, tariffs, and weakening employment are all likely to weigh on growth ahead.
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2025-10-17
[Investopedia,
USA]: Regional bank stocks tumbled on
Thursday after Zions Bancorp said it would write off fraudulent loans made to
two borrowers, adding to investors’ fears about lending standards and stress in
credit markets.
Zions Bancorp (ZION)
on Thursday said it had recently identified “what it believes to be apparent
misrepresentations and contractual defaults” by two borrowers. As a result, it
plans to write off $50 million of the $60 million outstanding on the affected
loans.
Shares of Zions
dropped 13% on Thursday, leading regional banks lower. The KBW Regional Banking
Index fell 6%.
The recent
bankruptcies of two companies in the auto sector—car dealer Tricolor and auto
parts maker First Brands—have cast a spotlight on potential credit market
risks. Tricolor is alleged to have fraudulently pledged risky subprime loan
portfolios to multiple creditors, while First Brands was allegedly borrowing
against invoices to mask the true size of its debt.
Regional lender Fifth
Third Bancorp (FTB), in a regulatory filing in early September, said it would
take a $170 million charge related to the collapse of subprime auto lender
Tricolor.
JPMorganChase (JPM) also wrote off $170
million in Tricolor-related loans in the third quarter.
And Raistone, which facilitates short-term business
loans, has said $2.3 billion has “simply vanished” as a result of First Brands’
failure.
The dual bankruptcies
have some on Wall Street worried that more credit losses are in the offing. “I
probably shouldn’t say this, but when you see one cockroach, there are probably
more,” said JPMorgan CEO Jamie Dimon on Tuesday following the release of a better-than-expected
earnings report from the banking giant.
"I expect it to
be a little bit worse than other people expect it to be," Dimon added,
noting that private credit underwriting standards "may not be as good as
you think."
The Unique Risks of
Lending to Non-Bank Financial Institutions
Zions’ filing on
Thursday added to mounting concerns about transparency in the banking system,
especially around lending to non-depositary financial institutions (NDFIs),
sometimes referred to as non-bank financial institutions. NDFIs—a category that
includes hedge funds, insurers, and lenders of mortgages and consumer
loans—offer financial services but do not take deposits, and thus don’t qualify
as a bank and are not regulated as such.
Bank lending to NDFIs
has exploded in the last decade. Since the financial crisis of 2008-2009, bank
loans to NDFIs have grown at nearly three times the rate of the next-fastest
growing loan category, according to the Federal Deposit Insurance Corporation’s
2025 risk review.
NDFI lending poses a unique risk to banks. “It can be particularly difficult for banks to assess the credit decisions and management of loans originated by private credit firms,” according to the FDIC. In addition, “loans originated outside the banking system are not subject to the same safety and soundness standards as bank loans, which could lead to higher-risk lending across the financial system.”
[BNN Bloomberg, Terry
Cain - Canada]: Carney rules out counter-tariffs: A Canadian delegation is
still in Washington for trade negotiations with U.S. officials. Meanwhile Prime
Minister Mark Carney says Ottawa is not prepared to impose counter-tariffs
against the United States. At a news conference Thursday to announce new crime
measures, the Prime Minister said: “Right now with the Americans we are engaged
in deep negotiations, intensive negotiations on several sectors of the Canadian
economy - energy, aluminum and the steel sector … There are times to hit back
and times to talk and right now is the time to talk.”
U.S. to ease auto
parts tariffs: There may be a glimmer of hope for the Canadian auto sector.
Bloomberg News is reporting the White House is poised to ease tariffs on the
U.S. auto industry. The report says that as soon as today the Commerce
Department will announce a five-year extension for an arrangement that allows
automakers to reduce what they pay in tariffs on imported car parts.
Previously, that provision was scheduled to sunset after two years. The
concession follows months of lobbying by carmakers for relief from President
Donald Trump’s tariffs. Canada is a major supplier of auto parts to U.S.-based
manufacturers.
Carney on Stellantis
Brampton’s future: Meanwhile Prime Minister Carney says Stellantis will decide
on the future of its plant in Brampton, Ont. after the next North American free
trade agreement is completed next year. This comes after the company said its
moving manufacturing of the Jeep Compass SUV south of the border to avoid
tariffs. Carney says he spoke with the CEO of Stellantis and was told that the
company is looking to build a different model at the Brampton plant after new
CUSMA deal is reached.
High China tariffs
“not sustainable”: Markets were given a boost this morning by new comments from
U.S. President Trump on China. In an interview on U.S. television, Trump said
high threatened tariffs with China were “not sustainable.” The tariff clash
between Washington and Beijing saw U.S. import taxes on Chinese goods rise to
as high as 145 per cent in a tit-for-tat exchange that raised fears of a global
downturn and a cutoff in trade between the two economies.
Scotiabank cutting
jobs: The Bank of Nova Scotia says its cutting jobs across its Canadian banking
division. In a memo to staff, Aris Bogdaneris, Scotia’s head of Canadian banking,
said changes at the bank “over the last few weeks” are designed “to prioritize
only those activities that drive the most meaningful impact for our business.”
“I want to acknowledge that a transformation of this scale is not easy,
especially when it means saying goodbye to valued colleagues,” Bogdaneris said
in the memo, but didn’t specify how many roles are being cut.
----------------------------------------
2025-10-16
[Investopedia,
USA]: The U.S. economy is still stuck in
its low hiring, low firing rut, according to the Federal Reserve's anecdotal
Beige Book report.
While there was no
hard data attached to Wednesday's report, which covered September and early
October, the Beige Book painted a picture of employers across the country
avoiding mass layoffs and also steering clear of hiring many new workers.
The report is always
based on anecdotes from business and community leaders.
[BNN Bloomberg, Terry Cain - Canada]: Ottawa threatens legal action
against Stellantis: The federal government is threatening legal action against
Stellantis, after the automaker announced it’s halting plans to manufacture its
Jeep Compass SUV at a factory in Brampton, Ont. and will instead move
production of the vehicle to the U.S. The move puts the jobs of thousands of
workers at the Canadian plant in limbo. Industry Minister Melanie Joly calls
the move “unacceptable”, citing legally binding commitments to its Canadian
operations, specifically, commitments made by accepting support through
Canada’s strategic innovation fund. Ottawa is demanding that Stellantis come up
with new mandates for the factory and keep its contracts with Canadian
suppliers.
China’s export
controls pushback: China’s decision to unveil new export controls on rare
earths is sparking a global pushback, with the U.S. and other countries forming
a response. The White House said it is speaking with Canada, Australia, India,
the Asian democracies and its European allies to form a response to China’s
moves. Beijing has said the new export controls are due to national security
concerns. The move comes as Chinese president Xi Jinping and U.S. President
Donald Trump prepare for their first sit-down in six years next week.
Relief for softwood
lumber: Industry Minister Melanie Joly says financial relief is coming soon for
Canada’s tariff-hit softwood lumber sector. Joly says Ottawa will provide
funding through banks, backstopped by the Business Development Bank of Canada,
in the coming days. Joly says the funding will go toward ensuring businesses
stay afloat while dealing with “unjustifiable” tariffs, adding that funding
will be provided based on individual companies’ needs. The government will also
offer support for operations and capital expenditures.
Home sales fall in
September: Home sales across the country fell in September after months of
growth. Data from the Canadian Real Estate Association shows sales activity
declined 1.7 per cent compared to the month before. The drop was led by lower
sales in Vancouver, Calgary, Edmonton and Ottawa. New listings also saw a
decline in September and home prices fell to their lowest level in over four
years. CREA says the data point to a real-estate market that is adjusting to
tepid economic conditions and a weak labour market, triggered by a major shift
in U.S. trade policy.
BMO to sell U.S.
branches: Bank of Montreal has agreed to sell 138 branches in 11 states to
First-Citizens Bank & Trust. The lender says the move is part of a plan to
optimize its network and is aimed at focusing on markets with potential for
long-term growth. BMO says it also plans to open 150 branches over the next
five years. Under the terms, First Citizens will assume about US$5.7 billion.
In deposits, BMO said it will record a charge of about $104 million in its
fourth quarter.
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