HEADLINES

Manufacturing Sector PMI Dipped to 53 in August But Still Reflects Expansion

Canadian manufacturers activity continued to expand last month, though activity cooled modestly and input price inflation remains elevated, data showed Tuesday.

The S&P Global Canada manufacturing purchasing managers index eased to 53 in August after rising to 53.5 the month before. The index for a fifth straight month was above the 50 threshold between growth and contraction.

Paul Smith, economics director at S&P Global Market Intelligence, said output and new sales for manufacturers in the country rose solidly for the month and helped support job creation as well as optimism about the future. However, the survey was conducted before the recent collapse in trade talks between Ottawa and Washington.

"We may have already seen a high-water mark for growth. Tariffs were already having a negative impact on sector performance based on the latest anecdotal evidence, exacerbating supply-chain challenges, raising prices and weighing on exports," Smith said. "But with a notable escalation of trade tensions between Canada and its largest trading partner, all those existing challenges are set to be exacerbated, placing downside risks to output, orders, jobs and investment in the months ahead."

U.S. Taunting Canada 'Not Constructive' Toward Trade Resolution, Carney Says

The Trump administration's taunting of Canada isn't constructive and should cease if the U.S. is serious about clinching a beneficial trade deal with its northern neighbor, Prime Minister Mark Carney said.

"When the Americans stop doing memes, stop throwing shade, stop trying to be tough, and start being serious about having those discussions, we can have those discussions," Carney said to reporters Tuesday in Ottawa. "But, look, it's not constructive. That's their democracy," he added.

The prime minister's remarks were a rebuttal to Treasury Secretary Scott Bessent blaming the Canadian leader for the collapse of trade talks last month. Bessent also brushed off concerns about igniting a trade war with the U.S.'s second-largest trading partner, after Mexico, by noting that the American economy dwarfs Canada's.

Traders Exhibit Confidence in Canada Amid Bond-Market Turbulence, Finance Minister Says

The bond rout weighing on global markets Tuesday has left Canada relatively unscathed, Finance Minister François-Philippe Champagne said, adding that the government can borrow at one of the lowest rates among major-advanced economies.

This gives Ottawa some flexibility and strength to plot measures to help an economy dealing with geopolitical turbulence and a deteriorating trade relationship with the U.S., he said.

"The bond market is showing a lot of confidence in Canada, both in the short term and in the long term," Champagne said on the margins of a Group of 20 meeting of finance officials in North Carolina on Tuesday.

Loblaw to Open More Canadian Stores in C$1.2 Billion Growth Push

Canadian retailer Loblaw aims to invest roughly C$1.2 billion over the remainder of the year rolling out more stores and improving its network.

The company said it plans to accelerate the opening of new grocery stores and pharmacies, renovate existing locations, and also continue to develop new store formats and concepts. The capital investment is part of a target of spending C$2.4 billion in 2026, with half of that already spent.

Loblaw said it now expects to open about 75 new locations this year, compared with a prior target at the beginning of the year to open about 70. The decision to ramp up openings reflects a strong customer response to new locations and confidence in the formats where the company is investing, Loblaw said.

Bombardier to Acquire MHI Canada Aerospace Assets to Bolster Supply Chain

Bombardier is bringing critical wing and fuselage manufacturing in-house, strengthening its supply chain amid growing demand for its Global and Challenger business jets.

The Montreal-based business jet maker said that it has reached an agreement to acquire the Mississauga, Ontario-based assets and capabilities of MHI Canada Aerospace, absorbing its roughly 750 specialized employees. Financial details weren't disclosed, but the transaction is expected to close later this year.

Steady demand for its flagship business jets like Bombardier's Global series, coupled with a surge in military spending, has created a booming market across civil and defense aviation. But an overstretched aerospace sector has caused bottlenecks along the supply chain.

Descartes Systems Group Expands Warehouse Software Reach with $120 Million Extensiv Acquisition

Descartes Systems Group has acquired warehouse management and fulfillment software company Extensiv for $120 million.

Waterloo, Ontario-based Descartes said the acquisition expands its warehouse and inventory management capabilities while deepening its reach into third-party logistics and ecommerce fulfillment.

Extensiv, a California-based company, provides cloud software that helps third-party logistics firms manage warehouse inventory, order fulfillment and billing across online marketplaces. Descartes noted that the platform uses artificial intelligence to automate routine tasks and streamline decision-making for warehouse operators.

Scotiabank Appoints Former UBS CEO Ralph Hamers to Its Board

Bank of Nova Scotia has added former UBS and ING boss Ralph Hamers to its board.

Hamers joins the Canadian bank, one of the largest in North America by assets, with immediate effect.

Hamers spent nearly three decades at ING, joining the bank in 1991 and serving in senior roles across Europe before holding the post of chief executive from 2013 to 2020. He joined UBS in 2020, where he was CEO until 2023.

TALKING POINT

Bank of Canada Expected to Remain On Hold as Trade Conflict With U.S. Escalates

By Paul Vieira

OTTAWA--The Bank of Canada is widely expected to keep its main interest rate unchanged on Wednesday as policymakers assess the fallout from a stark deterioration in Ottawa-Washington trade ties.

All 12 economists surveyed last week by The Wall Street Journal predict the Bank of Canada will hold its target for the overnight steady for a seventh straight decision, at 2.25%. The economists said they don't anticipate central bank officials to overreact after the collapse of trade talks last month between the U.S. and Canada.

The fraying of economic and diplomatic ties between the neighboring countries poses yet another headwind for Canada, which recent data indicated had perhaps turned the corner after a trade-uncertainty-induced period of stagnant activity.

New hefty Trump administration tariffs, Canada's planned retaliatory response, and the threat of potentially crippling U.S. duties on Canada's motor vehicles and parts starting Jan. 1 has roiled the Canadian public and business owners.

Significant hits in consumer and business confidence in the weeks ahead could be in the offing.

"Emotions are running very high on both sides of the border; emotions make for lousy forecasts," said Derek Holt, economist at Bank of Nova Scotia.

Data show Canada's economy recorded a stellar performance in the second quarter, with 3.3% annualized growth marking the biggest increase in output in over three years. Expansion was broad-based, and powered by exports, household spending and a recovery in business investment. On a one-year basis, real gross domestic product rose 1.2% in the second quarter, relative to flat 12-month growth in the prior three-month period.

For some economists, the case for rate increases had been building, based on growth surpassing Bank of Canada expectations and worries about higher energy prices spreading to other goods. "The trade war escalation has derailed it," said Sébastien Mc Mahon, chief economist at iA Financial Group.

The minutes from July's rate-policy decision indicated that senior officials harbored doubts about whether the momentum unfolding in the second quarter had staying power. Statistics Canada said its early estimate for GDP in July indicated the economy stalled, which sets the stage for slower growth in the third quarter.

"Had we not seen trade-conflict escalation, there still would have been a long runway before the latest pickup in growth would have compelled a rate hike," said Avery Shenfeld, chief economist at CIBC Capital Markets, citing excess capacity in the economy.

Of the economists surveyed, only Holt from Scotiabank said there would be a rate increase by the end of 2026, arguing that slack would be absorbed at a faster-than-expected pace. Seven economists predicted rate increases during the first half of 2027 while two analysts tabbed the second half of next year--although some of these forecasts are contingent on no further escalation in the U.S.-Canada trade conflict. Two economists expect the Bank of Canada to be on hold until 2028.

Economists add that trade tensions complicate the Bank of Canada's main focus, which is to ensure inflation hits and remains at 2%. Energy prices remain elevated, and crude oil prices jumped this week after the U.S. resumed attacks on Iran. And the effects of Canadian retaliatory tariffs of between 15% and 50% on $20 billion of U.S. imports could add anywhere between 0.2 and 0.5 percentage points to headline inflation, the economists surveyed said.

"The Bank of Canada must prioritize managing price pressures over growth concerns when the two are in conflict," said Royce Mendes, head of macro strategy at Desjardins Group. "To support growth, policymakers are expected to remain on the sidelines." Headline inflation sits at the top end of the central bank's 1% to 3% target range, although core prices--which strip out food and energy--are near 2%.