The Biggest Story: A New Fed Chair Arrives
Jerome Powell’s tenure as Federal Reserve chair ends tomorrow, May 16. The Senate confirmed Kevin Warsh as the 17th Fed chair on May 13 by a 54–45 vote — the narrowest confirmation in the modern era. Warsh, a former Fed governor and Morgan Stanley banker, is seen as more open to rate cuts than Powell was in his final months.
The FOMC held rates at 3.50–3.75% at its April 29 meeting for the third straight time, but the vote was unusually contentious: four governors dissented — one wanting a 25 bps cut, three others objecting to language implying future cuts. Warsh chairs his first meeting on June 16–17. Markets will scrutinize every word he says between now and then.
Canada: Holding Steady, Watching Oil
The Bank of Canada held its policy rate at 2.25% on April 29 and won’t meet again until June 10. The hold reflects two competing forces:
- Inflation rising: Canadian CPI jumped to 2.4% in March (from 1.8%), driven by energy, and the BoC projects a peak of 2.8% in Q2 before easing back to 2% by 2027.
- Growth softening: Canada lost 17,000 jobs in April, pushing unemployment to 6.9% — a six-month high. Private-sector GDP growth is forecast at just 1.1% for 2026.
The pressure on the BoC is asymmetric: cutting risks fanning inflation, but holding risks deepening a labour market already weakened by US tariff uncertainty.
Oil at $104 — A Double-Edged Sword
WTI crude hit ~$104/barrel this week, up roughly 10% over five days. The driver: the Strait of Hormuz is effectively closed amid stalled US–Iran talks, pulling ~8.5 million barrels/day off global markets. Brent is at ~$106.
For Canada, this is complicated:
- Energy sector wins. Canadian oil sands producers and pipeline companies get a significant revenue boost. TSX energy stocks have been strong.
- Inflation worsens. High oil prices are already driving CPI higher. A sustained $100+ oil price makes it harder for the BoC to cut.
TSX: Banks Lead, Markets Diverge
The TSX Composite closed around 34,267 on May 14, up 0.7% on the day. Royal Bank (+2.3%) and BMO (+1.9%) led gains. Over the past year, the TSX is up +32.3% — a remarkable run.
Across the border, US markets are pulling back today after hitting records yesterday. The S&P 500 crossed 7,500 on May 14 (its first time), but is down ~1.1% intraday on May 15. The catalyst: the Trump–Xi summit ended without major trade deals, and the 10-year Treasury yield spiked to 4.55% — its highest in a year — weighing on growth stocks.
The CAD/USD sits at roughly 1.3724 (CAD = ~$0.728 USD), up ~1.7% versus the dollar over the past 12 months.
Canada Pivots East
The most strategically significant Canadian development isn’t in the markets — it’s in trade flows. Following a US court removal of IEEPA tariffs (later replaced by a flat 10% US tariff on all non-trade-agreement imports):
- Canadian merchandise exports to non-US partners are up 17% year-over-year
- Exports to the US fell 10%
- Canada has recovered ~$11B of $18.5B in lost US trade by tapping 27 alternative partners
The landmark deal: China cut tariffs on Canadian canola seed from ~84% to ~15%; Canada cut tariffs on Chinese EVs from 100% to 6.1% (first 49,000 units). The USMCA review is scheduled for July 2026, which will be the next major inflection point for Canada-US trade.
The federal government also committed $1.6B in additional support over six years for tariff-affected workers and businesses, on top of the $25B in Budget 2025.
Key Numbers to Watch
| Metric | Level | Direction |
|---|---|---|
| Bank of Canada rate | 2.25% | Hold (next: June 10) |
| US Fed funds rate | 3.50–3.75% | Hold (next: June 16–17) |
| TSX Composite | ~34,267 | +0.7% May 14 |
| S&P 500 | ~7,425 | -1.1% intraday May 15 |
| WTI Crude | ~$104/bbl | +10% this week |
| USD/CAD | ~1.3724 | Stable |
| Canada CPI | 2.4% | Rising |
| US CPI | 3.8% YoY | Elevated |