Canada’s economy has generated no economic growth in five months and no job growth in eight months. Meanwhile, the household wealth effect is in reverse, with home sale prices nationally down 20% over the past 4 years and the stock market negative year-to-date.
The S&P 500 and Canada’s TSX are both off more than 7% and back to their levels last July and December 2025, respectively. Financials are falling. The US small-cap index is off more than 9% and back where it was in November 2024. Tech is making matters worse with the Nasdaq off more than 12%. International exposure isn’t helping; the MSCI all-country stock index, which covers large and mid-cap stocks across 23 developed and 24 emerging markets, is -8% since February and back to where it was last August. No shelter from the storm: defence and health care stocks are off double digits, too. Still, more mean reversion is due: thus far, equities and home prices remain at the high, unattractive end of historic valuation levels.
Against this backdrop, fears of persistent oil-price inflation have caused Treasury yields to rise as the futures market is pricing in two Bank of Canada rate hikes in 2026, with a 30% chance of a third. This has driven up interest rates so that Canadian households are borrowing at an average rate of 4.8% or 3.0% in real terms (CPI at 1.8% in February)–70 bps above the average for the past three decades.
Since the start of the war in Iran, gasoline has been up approximately 30%, and diesel has been up around 40% across Canada, according to the Canadian Fuels Association.
No one knows how long fossil fuels will remain elevated, but housing accounts for a larger share of Canada’s cost of living index — the largest single component at 30%. The race is on to see how long central banks can watch from the sidelines as the job and asset markets weaken. The discussion below is on point.
David Rosenberg, founder and president at Rosenberg Research & Associates, joins BNN Bloomberg to discuss the BoC’s rate roadmap and the Mideast conflict. Here is a direct video link.