Global markets continue navigating complexity, volatility, and headwinds. However, though recent corporate earnings suggest underlying market resilience. A potential U.S.-Iran deal is advertised as "largely negotiated" but remains unsigned. A resolution to the conflict could ease energy prices and inflation concerns that currently keep bond yields elevated. In this economic update, we discuss the ever-changing geopolitical landscape, as well as a dive into the state of the Canadian economy and equity market.

We are also highlighting our team's recent fundraising efforts in support of the Youth Wellness Hubs Wellington-Guelph, including our on-site volunteering at two of their amazing locations.

Lastly, a reminder that our summer office hours are currently in effect. Our offices will be closed at 4:00pm each Friday between now and September 4th. Thank you for your understanding!

Economic Update

Geopolitics: Awaiting Confirmation

U.S. President Trump’s repeated assertions that a deal with Iran to reopen the Strait of Hormuz is “largely negotiated” have yet to produce a signed agreement. Prior to the conflict, the Strait facilitated roughly one-fifth of global oil shipments, and its continued closure has kept energy prices elevated. While the world economy has thus far demonstrated resilience, sustained commodity supply disruptions remain a significant risk to growth and inflation.

Against this backdrop, equity markets have recovered from their March correction and advanced further on the back of healthy corporate earnings and optimism of an eventual U.S.-Iran deal. Fixed income markets, however, have been more cautious. Bond yields remain well above where they started the year as markets consider the possibility that the energy shock could keep inflation pressures firmer for longer.

We are encouraged by the durability of the economy and corporate profitability but also recognize that recent gains in risk assets appear to reflect a high level of confidence regarding the timing of a U.S.-Iran deal. A finalized agreement that restores transit through the Strait may be needed to extend upward momentum. More importantly, it should help lower energy prices, ease inflation worries and create scope for bond yields to move lower.

Canadian Economy: Better Than the Headline

Canada’s latest GDP report generated headlines after economic output slipped 0.1% annualized in the first quarter, well below expectations and marking a second consecutive quarterly decline. While this met the common definition of a “technical recession,” we believe the underlying details were not as weak as implied by the headline figure.

Much of the downside surprise reflected a pullback in government defence spending after strong outlays in 2025. Business investment remained soft, but investment in equipment and intellectual property posted gains. Household spending continued to grow, suggesting resilient consumer demand. Demographic trends also make the data harder to interpret. Canada’s population fell for a second consecutive quarter as immigration slowed, meaning total economic output can understate underlying performance. In fact, real GDP per person rose 0.9% annualized during the quarter.

Overall, the report points to a sluggish and uneven economy, but not one experiencing a significant broad-based slowdown. Recent business surveys similarly indicate activity is expanding modestly, even as companies continue to navigate uncertainty and rising costs.

Trade policy remains the key near-term risk. Our expectation is that the trade terms in the CUSMA treaty will remain broadly intact, but the review process is likely to bring unsettling headlines. The recently proposed 10% U.S. tariff illustrates how even limited measures can create complexity and weigh on business sentiment, even if CUSMA-compliant goods are likely to be exempt.

Banks Lead Canadian Earnings

Canada’s big banks kicked off Q2 earnings season with results that generally exceeded expectations. Strong equity markets, improving dealmaking and elevated trading activity helped drive healthy revenue and profit growth and offset softness in consumer lending.

Despite favourable earnings reports, share price reactions were mixed. Part of the explanation may lie in valuation. Following a period of strong performance, Canadian banks’ valuations sit meaningfully above long-term averages, leaving less room for positive surprises to be rewarded.

Summary

Global risk assets continue to show resilience in the face of challenging cross-currents. The Middle East conflict remains unresolved, while trade uncertainty continues to cloud the outlook for many Canadian businesses.

Reassuringly, corporate earnings are providing important fundamental support for equity markets, a reminder that macroeconomic trends and markets can diverge at times.

Uncertainty can be unsettling, but the central discipline of diversifying portfolios remains a useful approach to withstand a wide range of market outcomes.

Fundraising and Volunteering - Youth Wellness Hubs Wellington-Guelph

Through the month of May, our team internally raised $4,100 to support Youth Wellness Hubs Ontario Wellington-Guelph Hubs. 

In celebration of those efforts and to continue giving back to our community, our team also volunteered at two Youth Wellness Hubs locations to engage with the youth who are accessing vital mental health resources. It was an incredible and impactful experience and shines a light on the amazing work the Hubs does to create a safe space for at-risk youth.

We are proud supporters of the Youth Wellness Hubs Ontario Wellington-Guelph, and their mission to create mental health and wellness supports for our community’s children and youth.

In addition to our most recent fundraising efforts, our team are excited to announce we have committed to continuing our presenting sponsorship of Mask Off for the next three years, and continuing to celebrate community, compassion, and collective impact – all in support of the Youth Wellness Hubs Ontario Wellington-Guelph.

Summer Hours are in effect

Starting June 5th, our offices are now observing Summer Hours until September 4th. During this time, our offices will be open as usual Monday to Thursday from 8:30am to 4:30pm, and on Fridays our offices will be closing at 4:00pm. Thank you for your understanding!

As always, we are available to connect with you personally. Please don’t hesitate to contact us at 519-822-2024 or elineskyschuett@rbc.com.