Canadian Firms Seen Bearing Brunt of U.S. Counter-Tariff Costs — Market Talk
1234 ET - Canada's retaliatory tariffs on U.S. imports will primarily squeeze corporate profit margins rather thank drive up consumer inflation, according to Oxford Economics in a report. Senior Economist Michael Davenport says that input-output modeling shows Canadian firms bearing the brunt of the price hikes across finished goods. "Machinery and equipment prices and construction costs will increase," he says, noting that they will affect finished products such as telecommunication equipment, freight and industrial machinery, as well as key inputs like steel, aluminum and timber. However, he says that the ultimate effect on demand prices will depend "on the degree to which firms, households, and governments substitute away from U.S. imports." ([email protected])1126 ET - The best news from Friday's inflation report came from the housing sector, Fifth Third Commercial Bank's Bill Adams says in a note. Prices are high, but the rate of increase is finally under control, the economist says. Rent of primary residence rose less this past August than in any month between 2014 and 2019, he says. That was the "glass half full" portion of the otherwise mixed readout, Adams says. There were also outsize increases of discretionary travel service prices, suggesting that strong demand there is adding to inflation outside of energy and AI-related electronics, he says. ([email protected])1100 ET - Demand for euro-denominated corporate bonds has been strong in recent years, encouraging companies to issue more bonds, LBBW's Matthias Schell says in a note. In 2025, companies supplied 543 billion euros ($630.5 billion) in new euro corporate bonds, a record level, Schell says. "This year, too, the volume of new issuances is on track to set a record, supported by continued strong demand for corporate bonds." ([email protected])1039 ET - The Federal Reserve could still decide to keep rates steady after inflation came in mostly as expected, rather than accelerating, Atsi Sheth of Moody's Ratings says in a note. "The possibility of a continued pause remains on the table," the chief credit officer says. Some in the market believed a lower CPI reading was a requirement for the Fed to remain on pause and have now shifted to expecting a hike, Sheth says. But the month-over-month increase in core prices was only a tick higher than it has been in the last three months, she says. ([email protected])1034 ET - The markets now expect the Fed to raise rates by 25 basis points next week, but the impact of the hike may be muted, LPL Financial's Jeffrey Roach says in a note. A widening share of economic activity is less sensitive to interest rates, similar to what was seen during the Fed's hiking cycle in 2022 and 2023, the economist says. Demand could remain resilient despite a tighter policy due to surging AI investment and continued spending on travel from affluent consumers, Roach says. He expects nominal economic growth will remain higher than 6% in the coming quarters. ([email protected])1027 ET - Major cryptocurrencies are climbing following a firm August CPI. Bitcoin rises 2% to $78,801, after traders rejected the $80k mark, which analysts see as a short-term lid. "After a 24% two-week rally, price stalled as it ran into a cluster of on-chain and technical resistance," say analysts with CryptoQuant in a note. "A supply wall sits directly overhead at $77.1k-$80.2k." Ethereum rises 5.7% to $2,602, XRP is up 3.8% to $1.41, and solana climbs 4.4% to $104.41. ([email protected])0959 ET - The European Central Bank remains the largest single investor in the euro investment-grade credit market, LBBW's Matthias Schell says in a note. The size of ECB's corporate bond holdings has reduced gradually over the past three years after it stopped purchasing corporate bonds in 2023. The holdings have also declined as bonds mature. As at the end of August, the ECB held 253.6 billion euros in euro IG bonds bought during previous periods of quantitative easing, down from a peak of 390 billion euros in 2023, Schell says. ([email protected])0946 ET - The U.S. 2-year yield is sensitive to expectations for short-term interest rates. The core CPI, which excludes volatile food and energy prices came in hotter than analysts expected in August, rising 0.3% month-over-month versus the expectation of 0.2%. The U.S. 2-year yield rose to 4.598%. Odds for a rate hike at next week's Fed meeting also climbed to nearly 90%. A month ago, those odds were nearly split.([email protected])0945 ET - The August CPI showing inflation rising 3.4% year-over-year, and the core up 2.4%, strengthens the case for a Fed rate hike next week says to Karl Schamotta, Chief Market Strategist at Corpay in a note. "In our view, the balance of risks facing the Fed now favors raising rates. With core price growth showing signs of accelerating, oil benchmarks up more than 78% this year, tariffs rising once again, Washington floating fiscal giveaways, and artificial intelligence investment still flowing, there's little to suggest that inflation pressures are set to ease in the months ahead, giving officials little choice but to take action now." Futures traders seem to agree with the CME's FedWatch Tool now showing an 85% likelihood that the Fed will raise rates by a quarter-point. ([email protected])0933 ET - Sterling could fall versus the euro if Bank of England Governor Andrew Bailey pushes against markets' expectations of BOE interest-rate rises during its policy decision on Thursday, ING strategists say in a note. Investors currently fully price in one-quarter point BOE rate rise in 2026, and three rate increases by March 2027, LSEG data show. Euro is last down 0.1% at 0.8583 pounds. "We have a 0.86 euro/sterling forecast for end-September and a 0.87 view for year-end on the assumption that some of that aggressive BOE tightening is priced out," ING strategists say. ([email protected])0930 ET - Now that economists have the PPI and CPI print in hand, they can start calculating their forecasts for PCE, the Fed's preferred inflation gauge. Capital Economics now estimates the PCE deflator rose by 0.27% month-over-month in August. Some economists estimated that upcoming methodological changes at the BEA, which publishes PCE, could relieve some pressure on the core PCE deflator. But, Capital's Stephen Brown says that projection is unlikely to be affected much by the revisions to portfolio management and software & accessories price calculations. ([email protected])0914 ET - The upside surprise to core CPI in August means the Fed looks set to hike next week, according to a note from Capital Economics. Core CPI came in at 0.3% month-over-month, while economists polled by WSJ expected an increase of 0.2%. Capital Economics says that in analyzing the CPI components that feed into the PCE calculation, the monthly estimate implies that annual core PCE inflation would rise from 3.3% in July to 3.4%. "In short, core PCE inflation is moving in the wrong direction and that should be enough for the centrists on the FOMC such as Governor Christopher Waller to support a hike next week," the note says. The PCE is the Fed's preferred method of measuring inflation. ([email protected])