Canada

MacroQuant recommends a slight underweight to equities and an overweight to bonds and cash. The model is bullish on the US dollar, negative on gold, very negative on copper, and neutral on oil.

Markets expect further BoC tightening, but Canada’s economic backdrop casts doubt on how far rates can rise. We assess to what extent inflation, the labor market, and housing will limit the hiking cycle, and explore the implications for Canadian bonds and the CAD.

Markets expect the BoC to hike by 100 bps over the next year; we do not. Housing and labor weakness argue for owning Canadian bonds now, while Carney’s reforms and a resource capex wave make the CAD and resource stocks multi-year winners.

We review our Model Bond Portfolio performance for Q3 and look ahead as energy prices continue to drive fixed income markets. Balanced labor markets point to a mild tightening cycle, creating opportunities in government bonds and credit, while inflation-linked bonds continue offering protection against persistent energy risks.

MacroQuant recommends an underweight to equities and bonds, counterbalanced by a significant overweight to cash. The model is very bullish on the US dollar, slightly negative on gold and copper, and positive on oil.