Financial Panorama

A positive global outlook despite everything

The global growth indicator of the Organization for Economic Cooperation and Development (OECD) continues to forecast growth of 3.1% in 2027, which is positive. Global PMI indicators remained in expansionary territory and even improved slightly worldwide, despite a decline in some Southeast Asian countries.

Corporate earnings, which met expectations in the second quarter, will once again come under close scrutiny starting the week of October 12. Earnings growth of 29.5% for the S&P 500 index is expected for this final quarter, compared to the same period in 2025. As for the S&P/TSX Canadian Index, growth is expected to be 23.9%. This strong increase in earnings is allowing stock markets to hold steady and even rise, despite rising interest rates.

Against this backdrop, stock markets continue to benefit from a boom partly driven by infrastructure spending for the development of artificial intelligence (AI). Economic growth, though modest, is spreading to several sectors, which is positive for the markets.

Government bond yields

Since the beginning of the year, 10-year yields have been rising due to inflation and budget deficits. While yields on Japanese, German and Canadian bonds have followed a similar trend, U.S. and French bonds have seen more significant yield increases since the end of August.

In France’s case, chronic deficits and a government deadlock preventing the passage of a budget are weighing on yields, which are now significantly higher than German yields—the benchmark in Europe.

In the United States, an above-target inflation rate and a significant deficit—even though the country is not in a recession—are having a direct effect on the yield investors are demanding to finance the government.

Global Yields on 10-Year Government Bonds

Key issues: inflation and energy, once again

Persistent inflation in the United States and the impact on energy prices caused by the conflict with Iran are keeping price growth too high. Several central banks have either resumed raising rates or are seriously considering doing so. Accelerating job losses in Canada could prompt its central bank to put any further rate hikes on hold.

Efforts to minimize the impact of the conflict with Iran on the transport of petroleum products through the Strait of Hormuz and throughout the region appear to have restored about 85% of the volumes that were transiting at the beginning of the year, but the significant increase in marine insurance costs and the use of less efficient alternative routes are keeping prices high.

The recent attacks on Saudi infrastructure by Iran-linked groups are aimed at increasing that country’s bargaining power vis-à-vis the United States, because the resumption of oil tanker transit through the Strait of Hormuz and the use of other alternative routes have shifted the balance of power between the two adversaries. Several European countries have also agreed to tap into their strategic reserves to lower energy prices for freight transport and to meet the needs of their citizens.

Despite this, the price of diesel remains high. This fuel is used primarily in the agricultural and transportation sectors; the impact of the soaring costs is therefore significant in terms of inflation. The agreement between the United States and Russia to import Russian diesel could temporarily lower the price of this fuel, but the deal violates a law passed in 2022 by the U.S. Congress. The coming weeks will shed more light on how this situation unfolds.

U.S. midterm elections

On November 3, one-third of the U.S. Senate and the entire House of Representatives will be up for election. The markets are anticipating a victory for the Democrats, who are expected to win a majority in the House of Representatives.

A Democratic majority in the Senate could also lead to a mixed reaction, with some positive and some negative elements, but even in that case, neither party would have the required majority of 60 senators needed to move legislation forward quickly. In such a context, and after some time, corporate profits and future growth would rebound. It should also be noted that, historically, the third year of a presidential term (the one following the midterm elections) is usually a positive period for the stock markets.

The scenario no one is talking about is one in which the Republicans retain majorities in both Houses. The current administration could then view this victory as a validation of its strategy and push forward an even more extensive tariff plan.

Jobs: losses and gains

Job creation in Canada was weaker than expected, with a loss of 68,300 jobs, mainly in the public sector, among both full-time and part-time workers. The private sector added 24,100 jobs. Quebec saw the highest job losses, with 49,400 jobs cut. Previously, August had seen a loss of 41,700 jobs, mainly full-time positions. The gains made in June and July were thus completely wiped out. The recent tariff dispute also played a role in the loss of 12,700 manufacturing jobs. Wage growth rose from 2% to 2.3%.

South of the border, the employment situation was positive, with 29,000 jobs added—well below expectations of 90,000. The previous month’s data were also revised downward, from 162,000 jobs added to 133,000. For several months now, the United States has been experiencing stable but weak job growth. Overall, wage inflation at 3.0% and a stable job market are factors militating in favour of a rate hike by the U.S. Federal Reserve (Fed) by the end of the year.

U.S.-Iran conflict: nothing has been resolved yet

The conflict between the United States and Iran continues to make daily headlines. The price of oil remains the key indicator of the conflict’s status.

The U.S. administration has indicated that it will not escalate the conflict before the midterm elections.