Q3 2026 market update

Global equity markets increased over the quarter. Investors expressed cautious optimism towards equities. Ongoing global economic growth lifted sentiment. However, there were pockets of uncertainty for investors, including geopolitical tensions, trade disruptions and elevated inflationary pressures. Canadian and U.S. equity markets finished slightly higher, reaching new record highs. Companies continued to deliver strong earnings growth.

• Canada-U.S. trade tensions intensify
  • Canada and the U.S. were unable to reach a trade deal near the end of August.
  • As a result, the U.S. imposed new tariffs on several Canadian goods. Canada responded with matching tariffs on some U.S. goods.
  • Canadian Prime Minister Mark Carney said these tariffs could have a major impact on sectors tied to trade.
  • However, Carney said the impact on the overall economy may not be as large as feared.
• Canada’s economy expands in the second quarter
  • Before trade tensions grew, Statistics Canada reported that Canada’s economy expanded at a strong pace in the second quarter of 2026.
  • Stronger household and business spending helped support growth.
  • Exports also increased during the quarter.
  • Despite ongoing trade tensions, Canada’s economy continues to show resilience.
• Global central banks begin raising interest rates
  • Expectations are growing that global central banks may need to keep raising interest rates.
  • Central banks can use higher rates to help lower high inflation.
  • The U.S. Federal Reserve Board (Fed) and European Central Bank (ECB) have already started raising interest rates.

Canada-U.S. trade tensions escalate

Early in the quarter, U.S. President Donald Trump threatened to impose new tariffs on Canada due to perceived discriminatory practices by Canada. As the late-August deadline approached, Canada and the U.S. got closer to a trade deal but talks fell apart at the last minute. In response, the U.S. imposed new tariffs on $28 billion of Canadian goods.

Shortly after, Canada said it would impose retaliatory tariffs on a dollar-for-dollar basis, which went into effect in early September. In response, Trump imposed an import ban on $1.4 billion worth of Canadian goods, that went into effect in late September. When Canadian Prime Minister Mark Carney took over the role in 2025, he had removed retaliatory tariffs Canada had put on the U.S.

Canada has not been sitting still, as it has been dedicated to its goal of diversifying its trading relationships. Near the end of the quarter, Carney visited Europe, where the European Union (EU) offered to make Canada an associate member. The alliance would strengthen trade and security ties. Exact details of the alliance would still need to be worked out. Furthermore, Carney said he would take it back to the Canadian Parliament to discuss, debate and vote on.

How are large economies doing?

• The U.S. economy grew at an annualized pace of 2.2% in the second quarter of 2026 (as reported in the third quarter).
• China’s economy grew by 4.3% year-over-year.
• Europe’s economy expanded by 0.6%.
• The U.K. economy grew by 0.54%.
• Japan’s economy grew by 1.4%, annualized.

Source: Bloomberg Finance L.P.

Equity markets rise

• Global equity markets rose slightly over the quarter.
• North American equity markets reached new record highs during the quarter.
• Equities in Canada, the U.S., U.K. and EAFE increased. Conversely, equities in Europe, China, Japan and emerging markets declined.
• Global bond prices moved lower while bond yields increased. Concerns over inflation and global central banks raising, or considering raising, interest rates helped push up global bond yields.
• Canadian bond prices declined while bond yields increased.
• The price of oil increased as the conflict in the Middle East persisted, keeping the Strait of Hormuz effectively closed. Consumers and businesses around the world are feeling the impact from higher energy prices.
• The price of gold rose over the quarter.

Source: Bloomberg Finance L.P.

Global inflation rates remain elevated

At the beginning of the quarter, markets were expecting global inflation to soften as the U.S. and Iran reached a temporary peace deal. However, the temporary deal proved short-lived and tensions in the Middle East continued, keeping the Strait of Hormuz effectively closed. This pushed oil prices higher over the quarter. After inflation moderated early in the quarter, it began to pick up due to higher energy prices. As inflationary pressures accelerated, the Fed, ECB and Bank of Japan raised interest rates. The Bank of Canada (BoC) and Bank of England held steady but conveyed a willingness to raise interest rates if inflationary pressures persist and become more broad-based.

• Canada’s annual inflation rate was 3.0% in August, above the BoC’s 2% target.
• The U.S. inflation rate was 3.4% in August.
• The inflation rate in Europe ticked higher in August to 3.2%.
• The U.K. inflation rate rose to 3.1%.
• Japan’s inflation rate was 1.9%.
• The inflation rate in China was 0.8%.

Source: Bloomberg Finance L.P.

How is Canada’s economy doing?

Canada’s economy expanded at a relatively strong pace over the second quarter of 2026, rebounding from muted economic growth over the previous year as trade and geopolitical tensions weighed on Canada’s economic activity. Exports rose over the second quarter, despite trade disruptions with the U.S. Shipments of automobiles, metals and energy products increased. Canadian lawmakers continued in their efforts to diversify their trading relationships, particularly with the EU.

• Canada’s economy expanded by 3.3%, annualized, over the second quarter of 2026.
• The economy benefited from stronger exports, business investment and household spending.
• The outlook for Canada’s economy was uncertain in response to new tariffs from the U.S., along with Canada’s own retaliatory tariffs.
• Canada’s unemployment rate was 6.4% in August, down slightly from 6.5% at the beginning of the quarter.
• Canada’s annual inflation rate was 3.0% in August.
• Canadian equities moved slightly higher over the quarter. The Information Technology and Materials sectors were the strongest performers. The Communication Services sector posted the largest decline.
• The yield on the benchmark 10-year Government of Canada bond increased to 3.99% at the end of the quarter from 3.38%. Canadian bonds continue to deliver relatively strong income to investors.

Source: Bloomberg Finance L.P.