Clarity and Confidence amid Global Uncertainty

Bank of Canada stays cautious but proactive

While inflation remains slightly above target, steady employment and consumer spending allowed the Bank to pause after earlier rate cuts. The Bank of Canada held its benchmark rate at 2.75% throughout the quarter. The Bank’s tone remains cautiously optimistic suggesting it is in no rush to further easing unless conditions warrant it.

Canadian dollar shows resilience

Contrary to expectations of continued weakness, the Canadian dollar appreciated modestly against the U.S. dollar in Q2, ending the quarter at 1.3573 CAD/USD. That marks a gain of roughly 2% from year-end 2024, supported by relatively strong commodity prices, improving investor sentiment toward Canada, and a stable monetary policy. 

Federal election: New political direction

The April 28 election resulted in a Liberal minority government led by Mark Carney. While the outcome was largely expected, it has provided a clearer policy direction. The new government is focused on trade diversification, green investment, and removing interprovincial trade barriers - all efforts aimed at making Canada’s economy more self-reliant and resilient.

Canada’s response to the current economic environment: Thinking beyond the U.S.

Canada is taking deliberate steps to reduce its dependence on U.S. trade and strengthen internal economic ties. The government is advancing trade talks with Europe, Asia, and Latin America, while at home, the “Shop Canadian” movement continues to grow. Interprovincial trade reform is finally being treated as a national economic priority.

These developments will not transform Canada’s global trade posture overnight but does signal a growing commitment to economic diversification and long-term resilience.

What is happening in the U.S. and the global markets?

U.S. growth is slowing, with the Federal Reserve lowering its GDP forecast to 1.4% for 2025. Inflation remains above the 2% target, and the Fed is expected to consider rate cuts later this year. Recent tariffs and policy shifts have introduced more market volatility, as investors assess the broader implications.

As Anish Chopra of Portfolio Management Corp observed:

"The markets are absorbing the impact of the tariffs… on GDP growth in various countries, as well as on GDP growth globally.” (Canadian Press, April 8, 2025)

Beyond the U.S., other major global developments are also influencing investor sentiment:

• Impact of geopolitical volatility:  Brent crude traded around U.S. $63/barrel in April, rallied to nearly $77 by mid‑June amid a brief flare-up in global tension, then eased back to the high $60s by quarter’s end. Gold also rose temporarily as investors sought safety.
• China’s economic signals:  Chinese manufacturing activity declined in Q2. Early indicators suggest weakness may have continued into June, though final data is pending. In contrast, retail sales were strong, supported by central bank liquidity measures. The Chinese economy remains split between industrial softness and consumer resilience. 
• Global trade slows: The World Bank cut its global trade growth forecast to 1.8%, down from 3.4% in 2024, citing continued protectionism and weak global demand.

These factors - alongside domestic inflation and central bank policy shifts - are shaping a more uncertain and fragile global investment landscape.

How PMC is protecting and growing your wealth

While headlines change daily, our investment philosophy remains anchored to what has always worked: focusing on high-quality businesses with strong balance sheets, capable leadership, and proven ability to navigate uncertainty.

Think of investing like navigating a long sea journey. Storms are inevitable - some forecasted, others arrive without warning. Tariffs, interest rate changes, geopolitical risks - these are like sudden gusts of wind or rough seas. We stay on course with a sturdy ship, a clear compass, and an experienced crew. We cannot control the weather, but we can adjust the sails.

As Anish Chopra reminded investors earlier this year:

“There are just a lot of moving parts…it will take some time for this to clear up.”
(Canadian Press, March 12, 2025)

That is why we remain patient, disciplined, and focused on your long-term goals - not short-term noise. Your portfolio is built to weather market uncertainty, and we continue to monitor opportunities and risks with that guiding principle in mind.

Client Question Corner

Q: I heard the U.S. government will be taxing Canadian investors more on U.S. stocks and bonds. What is the latest?

A: The good news is that Section 899 was removed from the final version of the “Big Beautiful Bill” following a June agreement among G7 nations. This means there is currently no tax change to U.S. income sources for Canadian investors (i.e. dividends, interest, royalties, or other investment income).

PMC in the News 

1. Anish Chopra interview with BNN Bloomberg: TSX up more than 100 points, U.S. stock markets mixed
2. Anish Chopra interview with The Canadian Press:  Markets fall for fourth straight say over tariff fears
3. Anish Chopra interview with The Canadian Press: S&P/TSX composite up more than 100 points, U.S. stocks mixed ahead of tariff day  

Articles of Interest

1. Don't panic: There are 4 reasons the US can still avoid a recession in 2025
2. This country just raised the retirement age to 70 -- and others may follow
3. Thorough estate planning 'one of the most loving things': financial planner 

Commentary reflects the opinions of Portfolio Management Corporation (PMC) at the time of writing and may reference sources that PMC believes to be accurate and reliable. PMC does not guarantee the accuracy or completeness of such information, and our opinions and viewpoints may change over time. Forward-looking statements are based on historical events and trends and may differ from actual results.