A tale of two rate cuts
The Bank of Canada (BoC) shaved 25 basis points (a quarter of a percentage point) off its overnight rate, a move that was flagged well in advance by weakening job gains and softer growth. What’s changed is the tone: the BoC is no longer putting inflation above everything else. With tariffs biting into Q2 gross domestic product (GDP) and employment momentum fading, policy focus has shifted squarely to the economy. The statement was cautious, acknowledging risks but avoiding promises of further easing. That makes sense, with base effects set to nudge the Consumer Price Index (a key inflation indicator) back above 2% later this year, and with core inflation still sticky. The market is pricing another cut by the end of January 2026, but this can change quickly.
After nine months on hold, the U.S. Federal Reserve (the Fed) finally cut its interest rate by 25 basis points, putting the overnight funds rate in a range between 4–4.25%. Estimates of future rate cuts now pencil in another 50 basis points (half a percentage point) of easing by year-end and a gradual path lower through 2027. There was only one voice of dissent: newly installed governor Stephen Miran pushed for a bigger cut of 50 basis points. What makes this cut unusual is the backdrop. The Fed is easing even as it upgrades its growth forecasts and acknowledges inflation is still sticky. Projections still show inflation only returning to target in 2028. Markets expect no less than four cuts by summer 2026. If that happens and inflation remains at these levels, it's a decent backdrop for stocks and gold. The bottom line: the Fed is finally cutting, but the scale of easing remains to be seen.
Intel shares exploded after Nvidia announced a $5 billion investment at $23.28 per share, paired with a wide-ranging partnership. The deal will integrate Nvidia’s NVLink with Intel’s x86 CPUs (central processing units), bringing joint platforms for both data centres and PCs. It comes just weeks after the U.S. government bought a 10% stake in Intel, which is already showing hefty gains. Jensen Huang, president and CEO of Nvidia called the collaboration “historic”, while Intel’s CEO Lip-Bu Tan pointed to a fusion of CPU and graphic processing unit (GPU) strengths. The market clearly agreed, with Intel set for its biggest one-day jump on record. President Trump will likely push this story as proof that his “deals” can pay, with the government’s stake having grown considerably.
Next week, we’ll get GDP (gross domestic product) figures for both Canada and the U.S., which should give us further clues on the state of the economy.
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