Canadian Prime Minister Mark Carney speaks about the trade dispute with the United States at the Davie Shipyard in Levis, Quebec, Canada on August 24, 2026.
Investors misread the mood music on U.S.-Canadian trade talks, in a big way.
A report from JPMorgan released late Monday highlights that exchange traded funds invested in Canada enjoyed the strongest inflows in four years last week. The report, by derivatives analysts led by Bram Kaplan, called that "curious" in light of the escalating U.S. trade dispute.
Trump last week had delayed a plan to impose tariffs on Canadian goods by three days, to finalize a trade deal. By Friday night, those talks collapsed, with Canadian Prime Minister Mark Carney blaming last-minute additions the U.S. reportedly sought. According to Politico, U.S. negotiators said Ottawa wanted last-minute changes of their own.
U.S. investors in Canadian stocks didn't see a terrible Monday, despite the breakdown in trade talks that resulted in 50% tariffs on selected Canadian goods being imposed, with President Donald Trump threatening 50% tariffs on Canadian autos next year.
The iShares MSCI Canada ETF EWC closed 0.4% lower. The fund has gained 15% this year, about in line with the performance of stocks south of the Canadian border.
The Canadian stock market is dominated by its banking sector, and two of its giants, Toronto-Dominion (CA:TD) $(TD)$ and Royal Bank of Canada (CA:RY) (RY), finished broadly unchanged.
Bigger ructions were seen in the foreign exchange and bond markets. The U.S. greenback (USDCAD) was fetching C$1.3859 early on Tuesday, from C$1.3764 late on Friday. The yield on the 10-year Canadian bond BX:TMBMKCA-10Y fell 8 basis points, to 3.68%. Yields move in the opposite direction to prices.
According to research from Oxford Economics, the tariffs imposed by the U.S. will hit manufacturers in the central part of Canada the most, because of their higher concentration of directly affected manufacturing and greater reliance on U.S. exports. Their economists expect its central bank, the Bank of Canada, to keep interest rates at 2.25% well into 2027 and possibly into 2028.
The Oxford team didn't model the impact on the U.S. economy because the Carney government has yet to identify what sectors they will hit with retaliatory tariffs in two weeks' time. Oxford added it's still possible for an off-ramp and de-escalation of trade tensions ahead of the Sept. 8 deadline Canada set to impose levies on U.S. products.
-Steve Goldstein