Intelligent Investment
Cautious Passage
Canada Monthly Market Commentary - June 2026
June 30, 2026 2 Minute Read
Optimism for an end to the conflict in the Middle East remains high following the signing of a 14-point memorandum of understanding between the U.S. and Iran. This preliminary agreement extends the ceasefire for 60 days as parties negotiate towards a final deal and includes the reopening of the Strait of Hormuz to commercial traffic. While ships have started to transit the Strait once again, passage is still contentious and traffic only rose to about half of the pre-war baseline level. But global financial markets continue to respond positively as oil prices fall back to pre-war levels and bond yields, which spiked on the inflationary and economic consequences of the war, have come off their recent peaks. However, with key issues in the final agreement still outstanding and continued attacks from both sides, a durable and comprehensive peace deal is far from assured.
In Canada, economic growth has been weaker than expected so far in 2026 but is by no means dire. While real GDP did contract marginally by 0.1% on an annualized basis in Q1 2026, for a second consecutive quarter of GDP decline, economists have been quick to caution against labeling this as a recession. The negative growth in Q1 2026 was so minimal that future revisions could easily swing it back to the positive. As well, Canada’s unofficial recession-dating authority, the C.D. Howe Institute’s Business Cycle Council, looks for a “pronounced, persistent and pervasive” decline in economic activity before declaring a recession. Under this framework, the group has concluded that the current environment does not yet meet the criteria to be considered a true recession. Notably also, GDP on a per capita basis has actually been increasing, although due to population declines, and household spending remains broadly resilient.
U.S. trade policy also remains a looming uncertainty as the July 1st CUSMA review deadline quickly approaches and limited progress seems to have been made. While Canada has formally requested a straight 16-year renewal of CUSMA, the U.S. appears to be looking for major amendments to the agreement. The CUSMA exemption for compliant Canadian goods from non-sectoral U.S. tariffs remains intact at the moment, but the review process represents another uncertain variable for the Canadian economic outlook.
Against a weaker economic backdrop and rising headline inflation, the Bank of Canada has been cautiously navigating monetary policy and held interest rates flat at 2.25% this month for the fifth consecutive meeting. With the inflationary impact of the oil prices seemingly contained for now and the economy not in serious distress, the central bank is likely to remain on hold this year at least until new datapoints nudge the Bank of Canada into action one direction or the other.
Economic Highlights:
- Real GDP declined marginally by 0.1% annualized in Q1 2026, marking the second consecutive quarterly decline.
- Headline inflation rose to 3.2% in May 2026 while core measures CPI-Median and CPI-Trim held flat at 2.1% and 2.0%, respectively.
- Employment rose by 87,800 jobs in May 2026 and the unemployment rate decreased to 6.6%.
Viewpoints:
- U.S., Iran sign MOU to end war
- Traffic through Strait of Hormuz slows after attack on ship
- Too Early to Call a Recession: Business Cycle Council Urges Caution on Latest GDP Data
- LeBlanc offers ‘specific proposals’ to end trade war, calls for 16-year USMCA renewal
- Bank of Canada holds key rate steady in fifth consecutive decision
Latest Market Insights
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Brief | Intelligent Investment
Cautious Passage
Optimism for an end to the conflict in the Middle East remains high following the signing of a 14-point memorandum of understanding between the U.S. and Iran.
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Hope On The Horizon
Global financial markets are buoyant in the hope of an end to the Middle East conflict.
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Fragile Straits, Steady Rates
A fragile ceasefire in the Middle East has brought some degree of stability to global markets in recent weeks, but conditions remain far from settled.
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