U.S. equities began the week under pressure as renewed U.S.-China trade tensions and sanctions on American subsidiaries weighed on megacap tech, despite strong early bank earnings. Sentiment improved midweek after Fed Chair Powell signaled an easing bias and hinted at ending quantitative tightening, while robust results from major banks and AI-linked firms lifted markets. However, optimism faded Thursday into Friday as scrutiny of regional lenders over poor lending practices and fraud allegations sparked credit concerns, triggering a sharp risk-off turn. In Canada, gains tracked U.S. strength midweek before retreating alongside global risk aversion. European markets were mixed – France rallied on luxury earnings while U.K. data reinforced a sluggish growth outlook. In China, upbeat export data and easing PPI deflation failed to offset weak CPI and lingering trade frictions, leaving sentiment fragile.

Highlights:

U.S. equities returned 1.71%1, swinging between gains and losses as strong bank earnings and Powell’s dovish tone lifted sentiment midweek, before renewed stress in regional lenders and lingering trade tensions drove a late-week pullback.
Canadian equities returned -0.49%2 tracking Wall Street’s midweek rally on optimism around monetary easing and earnings strength, but reversed course as global risk aversion deepened following credit concerns again tied to U.S. regional banks.
European stocks rose 0.74%3, buoyed by luxury and semiconductor earnings early on, yet finished lower as weak U.K. data and Friday’s global selloff overshadowed earlier optimism around easing inflation pressures.
Emerging markets were up 1.11%4 on robust Chinese export data and easing deflationary trends, but sentiment deteriorated late in the week amid renewed U.S.-China trade frictions and subdued domestic demand signals.
Risk-off rotation boosts sovereigns while corporate credit finds support

U.S. rates trended lower early in the week as risk-off flows from renewed U.S.–China trade tensions and the absence of key economic data during the government shutdown drove demand for Treasuries. Midweek, Powell’s dovish remarks—signaling another rate cut and a possible halt to balance sheet runoff—reinforced the bid tone, while strong bank issuance tightened credit spreads after last week’s volatility. Canadian yields mirrored U.S. moves, supported by expectations of small-scale T-bill purchases later this month. In Europe, gilts outperformed on soft labour data, and sovereign bonds rallied broadly on benign inflation prints and political stability, though corporate supply slowed. Emerging markets saw muted reaction, with Chinese bonds steady despite persistent deflationary pressures and cautious stimulus signals, leaving global fixed income anchored by easing expectations.

Highlights:

The 2- and 10-year U.S. Treasury yields were down 17 basis points (bps) and 16 bps, respectively. In Canada, the 2- and 10-year yields fell 10 bps and 13 bps, respectively. Bond yields and prices move inversely to one another.
Sovereign bonds rallied through midweek as risk-off flows and dovish Fed signals drove yields lower across U.S., Canadian, and European curves, before stabilizing Friday amid lighter supply and modest profit-taking.
Corporate credit saw spreads tighten after early-week widening, supported by strong U.S. bank issuance and historically low default rates in high yield, though regional bank stress kept sentiment cautious into week’s end.
Weekly dashboardCanadian manufacturing sales fall 1.0% to $69.4 billion

Statistics Canada (StatCan) reported manufacturing sales fell 1% to $69.4 billion in August, as production declined in the aerospace and auto industries. The agency said manufacturing sales fell in 12 of the 21 subsectors, as the transportation equipment subsector dropped 5.7% and the food subsector lost 1.9%. On a constant dollar basis, manufacturing sales fell 1.5% in August.

Highlights:

The drop in transportation equipment sales to $10.7 billion in August came as production of aerospace products and parts fell 8.6%. Sales of motor vehicle parts dropped 5.2% and motor vehicles declined 3.3%.
In a separate report, StatCan said wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, fell 1.2% to $85.4 billion in August.
Wholesale sales, excluding those items, in volume terms fell 1.3% in August.
U.S. small-business sentiment declines slightly as uncertainty persists

Main Street business owners were less optimistic last month, as enduring inflationary pressures and labour shortages add to growing uncertainty about the economy. The National Federation of Independent Business reported that its optimism index, a gauge of sentiment among small firms, fell 2.0 points in September to 98.8, close to the 98-point level that marks the index’s long-term average. Economists had expected the level to hold at 100.8.

Highlights:

Supply-chain and inflation issues stood out as a key problem, the report said. Around 64% of small business owners reported that supply-chain disruptions were affecting their business to some degree, while a seasonally adjusted net 31% of small-business owners plan to increase prices over the next three months, up five points from August.
The report’s uncertainty index rose seven points in August to 100, the fourth-highest reading in more than 51 years. An increase in owners uncertain about their outlook for expansion contributed most to the rise.
While hiring plans are at the highest level since January, a seasonally adjusted 32% of owners reported job openings they couldn’t fill. Labour quality, alongside taxes, were the top single most-important problem for firms.
China’s exports rise at fastest pace in six months despite U.S. tariffs

China’s exports rose at the fastest pace in six months in September, beating market expectations and underscoring the sector’s continued role as a key growth driver for the world’s second-largest economy. According to data released by the General Administration of Customs, outbound shipments rose 8.3% from a year earlier, accelerating from August’s 4.4% increase and exceeding the 6.0% growth forecast by economists.

Highlights:

Exports to the U.S. fell 27.0% on year, extending a slide that began in April when the Trump administration’s “Liberation Day” tariffs on Chinese goods took effect.
Many goods originally destined for the U.S. has been rerouted through third countries such as Vietnam, which has emerged as a major transshipment hub and reported a 24.5% jump in imports from China, customs data showed.
Exports to other major trading partners continued to post double-digit gains. Shipment to the European Union, China’s No. 2 trading partner, rose 14.2%, the fastest pace in more than three years, while exports to the Association of Southeast Asian Nations, rose 15.6% on year.

by Scotia Wealth Management