U.S. equity markets had a strong week buoyed by expectations of policy easing following soft labour data. PPI came in cooler than anticipated, reinforcing rate cut bets, yet persistent services inflation and labour market slack left markets mixed by Friday. In Canada, equities tracked U.S. sentiment supported by falling rates and expectations for BoC easing, though industrial utilization data and tariff impacts weighed on growth forecasts. European markets opened the week with strong gains and extended their rally even after Thursday’s European Central Bank (ECB) decision where President Lagarde’s hawkish tone and upwardly revised inflation forecasts pushed yields higher and dampened expectations for near-term rate cuts. In China and emerging markets, equities advanced steadily despite slowing export growth—particularly to the U.S.—and deepening deflation, even as a ballooning trade surplus was driven more by stagnant imports than robust external demand. Rumors of a massive stimulus package later in the week helped reverse sentiment.

Highlights:

U.S. equities returned 1.60%1 as cooler PPI and rising jobless claims reinforced expectations for Fed easing, but hotter CPI and persistent services inflation tempered optimism around the pace and depth of future rate cuts..
Canadian equities were up 0.87%2, benefitting from falling yields and dovish central bank expectations, though weak industrial utilization and signs of tariff-related growth drag prompted caution around the country’s economic resilience heading into next week’s BoC decision.
European stocks rose 1.07%3, advancing even after the ECB’s decision where President Lagarde’s hawkish tone and upgraded inflation forecasts lifted yields and dampened hopes for further easing, despite earlier optimism around improving growth projections.
Emerging markets were up 0.84%4 despite facing some pressure from slowing export growth and deepening deflation. Sentiment rebounded late in the week on stimulus rumors, even as the ballooning trade surplus reflected weak domestic demand rather than external strength.
Yields drift lower as central banks weigh growth against inflation

U.S. fixed income markets rallied early in the week as soft labor data and a downside surprise in PPI reinforced expectations for Fed easing, but hotter-than-expected CPI and sticky services inflation later tempered the dovish narrative. Canadian yields followed a similar path, initially declining on weak employment and industrial utilization data, before stabilizing ahead of next week’s BoC decision, where markets anticipate further insurance cuts. In Europe, bond markets were steady until the ECB held rates unchanged; however, President Lagarde’s unexpectedly hawkish tone and upgraded inflation forecasts triggered a selloff, particularly at the front end of the curve. In emerging markets, Chinese deflation data and weak import demand supported local bond markets, while stimulus speculation helped cap yields despite persistent concerns around overcapacity and soft domestic demand.

Highlights:

The 2- and 10-year U.S. Treasury yields were down 5 basis points (bps) and 14 bps, respectively. In Canada, the 2- and 10-year yields were down 12 bps and 19 bps, respectively. Bond yields and prices move inversely to one another.
U.S. and Canadian rates opened slightly higher Friday following the earlier rally. The U.S. 10-year benchmark yield has been trending lower after taking out the May lows a week ago. Rates in both Canada and U.S. are likely to trade within a tight range into the FOMC and BoC meetings this coming week, where both central banks are expected to cut interest rates.
Credit spreads are unchanged late week, letting the rates rally to do the heavy lifting on returns. There is little activity in the primary markets, with another bout of sales expected early next week before the Fed’s rate decision Wednesday.
Weekly dashboardCanada’s industrial capacity slips amid sector-specific disruptions

Canada’s industrial capacity utilization rate declined to 79.3% in Q2 2025, down 0.6 percentage points from the prior quarter. The drop reflects reduced activity in key sectors, including oil and gas and manufacturing, driven by broad-based dislocations including tariffs, environmental disruptions and maintenance. While the overall decline was modest, sector-level volatility highlights ongoing challenges in sustaining output amid external pressures.

Highlights:

Canadian industries operated at 79.3% capacity in Q2, down from 79.9% in Q1. The revision to Q1 and current softness suggests a broader deceleration in industrial momentum.
Utilization fell to 75.9%, down 1.0 percentage points, due to forest fires and scheduled maintenance impacting oil and gas extraction.
Manufacturing dropped to 76.7%, led by sharp declines in petroleum and coal products (-5.2 pts) and food manufacturing (-2.6 pts), reflecting sector-specific headwinds.
U.S. consumer price pressures persist despite producer-level easing

August inflation data showed mixed signals. The Consumer Price Index (CPI) rose more than expected, while the Producer Price Index (PPI) posted a surprise decline. These readings reinforce expectations for near-term monetary easing, with markets pricing in a potential Fed rate cut at this coming week’s meeting.

Highlights:

Headline CPI rose 0.4% month-over-month (MoM) vs. 0.2% prior, with shelter and food contributing the most. The annual inflation rate now sits at 2.9%, suggesting persistent price pressures in key consumer categories.
Core CPI increased 0.3% MoM, unchanged from July, with the largest increases coming from airline fares, used and new vehicles, and apparel. Annual core inflation remains elevated at 3.1%, reflecting sticky services inflation despite easing goods prices.
Headline PPI fell 0.1% MoM, marking the third monthly decline this year. Core PPI also fell 0.1%, but rose 0.3% including trade services.
China’s trade surplus widens as export growth outpaces imports

China recorded a trade surplus of USD $102.3bn in August, exceeding expectations. Export growth moderated but remained solid, while import gains slowed amid weak domestic demand. The data reflects continued external resilience despite internal economic headwinds, particularly in the property sector.

Highlights:

China’s August trade surplus rose to USD $102.3bn, beating forecasts and up from USD $91.3bn a year earlier, driver by stronger-than-expected export performance.
Exports increased 4.4% year-over-year (YoY), slightly below expectations and down from July’s 7.2% growth, as temporary tariff relief effects faded.
Imports rose just 1.3% YoY, missing forecasts and slowing from July’s 4.1%, reflecting subdued consumer demand and ongoing property sector weakness.

1 S&P 500 Index USD
2 S&P/TSX Composite Index USD
3 Bloomberg Developed Markets ex N. America Large & Mid Cap Price Return Index USD
4 Bloomberg EM Large & Mid Cap Price Return Index USD

by Scotia Wealth Management – The Zukiwsky Group