As markets head into summer, two themes dominate: progress on geopolitical tensions and the looming review of North American trade policy. While headlines may create volatility, the underlying picture remains one of resilience. Here's what's unfolding and what it means for your portfolio.

Geopolitics: A Deal Takes Shape—But Implementation Matters

Reports of a U.S.-Iran memorandum of understanding to reopen the Strait of Hormuz mark a meaningful step toward de-escalation. Financial markets reacted positively: equities rallied, bond yields declined, and oil prices retreated.

However, there's an important distinction between announcement and implementation. Key questions remain around the deal's scope, durability, and enforcement mechanisms. We'll be watching closely in the coming weeks for evidence of follow-through.

What this means for energy markets: Even with a successful agreement, normalization will take time. Shipping traffic through the Strait and Middle Eastern energy production requires considerable recovery time due to complex logistics. Global oil inventories, depleted by recent disruptions, need rebuilding before markets regain a comfortable buffer against future shocks.

The result: Oil prices are likely to retain a geopolitical risk premium. A near-term return to pre-conflict levels of $60–70 per barrel appears unlikely. This means inflation and interest rate pressures could linger even as downside economic risks have notably diminished; an important nuance for your portfolio positioning.

Canada: The BoC Takes a Patient Stance

The Bank of Canada held its policy rate steady at 2.25% last week, a decision widely anticipated. Governor Tiff Macklem's commentary signaled a cautiously optimistic view: underlying economic conditions, particularly on a per-person basis, should continue improving gradually.

What the data shows:

• Labour market stabilization is tentative; the unemployment rate has fluctuated between 6.5% and 6.9% this year
• Slowing population growth may mean aggregate indicators understate true per-worker economic performance
• Consumer demand has held up reasonably well despite higher energy prices

The BoC's flexibility: These trends give policymakers room to wait for more data on growth and inflation before deciding on rate adjustments. For your portfolio, this means less immediate pressure from central bank policy shifts—a stabilizing factor.

RBC Economics captures this nuance in its latest Quarterly Canadian Outlook, titled "The economy is bruised, not broken." This framing is instructive: while near-term headwinds are real, the fundamental resilience of the Canadian economy remains intact. For a deeper dive into what this means for growth, employment, and inflation trajectories, we encourage you to review RBC's full outlook.

CUSMA: The Trade Review That Matters

A cornerstone assumption in our outlook for the Canadian economy is that the Canada-United States-Mexico Agreement (CUSMA) remains largely intact. This July 1st review is critical.

Here's what's at stake:

The agreement's first scheduled six-year review offers three potential paths:

• Extension (most likely in our view): Canada, the U.S., and Mexico renew the pact for an additional 16 years through 2042, potentially with negotiated revisions. This would boost business confidence by reducing uncertainty around investment and hiring.
• No extension, but framework continues: The existing agreement remains operational by default until 2036, with annual reviews enabling ongoing negotiations. Practical implications would be limited, though headlines could create intermittent volatility.
• Withdrawal (unlikely in our base case): Deep North American supply chain integration makes an outright withdrawal impractical for all parties.

What negotiators are discussing:

• Canada is prioritizing rollbacks of U.S. tariffs on steel, aluminum, and autos
• The U.S. may push for changes in auto-content rules, dairy market access, and restrictions on Chinese inputs

Our view: Prepare for potentially challenging headlines as negotiations unfold. However, we continue to view an outright withdrawal as unlikely given the economic interdependence across the region.

Earnings and Fundamentals Remain the Anchor

Despite an unsettled backdrop, corporate earnings and receding geopolitical risks have supported equity markets. This underscores a critical principle: when fundamentals are sound, temporary headlines create opportunity rather than permanent damage.

Understanding the Broader Economic Picture

To help you navigate these crosscurrents with greater confidence, RBC recently hosted Economic Insights with RBC's Chief Economist, featuring Frances Donald, Senior Vice President and Chief Economist at RBC, alongside Jim Allworth, Investment Strategist at RBC Dominion Securities. Their discussion explored current economic trends, market dynamics, and what these developments mean for your investment strategy.

Watch the recording: Economic Insights with RBC’s Chief Economist

This conversation provides valuable context for understanding how geopolitical risks, trade negotiations, and monetary policy intersect—and why maintaining a disciplined, diversified approach matters more than ever in uncertain times. 

Our Position: Diversified and Balanced

We remain focused on keeping portfolios diversified and balanced; an approach well-suited to capture the upside in our base case while managing through inevitable bouts of volatility. 

Your strategy:

• Maintain your strategic equity allocation in line with long-term targets
• Preserve diversified exposures across sectors and geographies
• Focus on fundamentals, not headlines
• Recognize that trade negotiation theatrics often precede constructive outcomes

The Bottom Line

Summer headlines will likely include trade negotiations and geopolitical updates. Some will be unsettling. But history shows that uncertainty, when managed with discipline, is where long-term investors find opportunity.

Your portfolio was designed for precisely this environment. Stay the course, remain diversified, and resist the temptation to abandon your plan based on short-term noise.

If trade policy developments or market moves are creating anxiety, or if you'd like to review your positioning in light of RBC's latest economic outlook, please reach out. We're here to help you navigate with confidence.

Kind regards,

Hayes Vickers Private Wealth