Yann Furic
B.B.A., M. Sc., CFA®
Senior Portfolio Manager, Asset Allocation and Alternative Strategies
On Wednesday, December 10, the Bank of Canada (BoC) decided to leave its policy rate unchanged at 2.25%. This decision was anticipated by the market, especially since the release of the latest labour market data on Friday, December 5, which showed job creation rather than job losses. The markets no longer anticipate any further cuts to the policy rate in Canada and are even expecting a rate hike in October 2026.
Final decision of the Bank of Canada and the Fed for the year 2025
South of the border, the U.S. Federal Reserve (Fed) cut its key interest rates by 0.25% as expected, and the markets are anticipating two further cuts in 2026.
The central banks of Europe, Japan, and Canada are on hold or considering the possibility of rate hikes, particularly in Japan. These divergences in monetary policy are likely to result in a weakening of the U.S. dollar, especially if they become more pronounced.
In fact, the weakness of the U.S. dollar against the euro in particular is one of the surprises of 2025. The pressure exerted on the Fed by the U.S. federal administration to lower interest rates, as well as the imposition of tariffs, is causing inflation to remain above expectations, which is reducing the value of the greenback and the purchasing power of consumers, driving up the price of gold and will eventually make U.S. exports less expensive abroad.
Employment continues to rebound in Canada
The addition of 53,600 jobs in November far exceeded expectations, as a loss of 2,500 workers had been anticipated. Last month’s positive trend continued, but it is mainly part-time jobs that boosted the labour market, as was the case last month. The unemployment rate fell to 6.5% and wage growth remains strong at 4%. The private sector added 52,200 jobs, suggesting that the economy is still managing to grow despite the negative impact of tariffs.
Supreme Court decision on tariffs: still pending
On November 5, the U.S. Supreme Court heard arguments from various parties on the U.S. administration’s use of a 1977 law to impose tariffs arbitrarily on a large number of countries around the world. The judges appeared skeptical of the government’s arguments. A ruling will be issued by next summer.
A decision against the U.S. administration would not necessarily mean the abolition of all tariffs; however, it would require a different legal process for imposing them, which would limit the power of government authorities to impose tariffs at will.
OVERVIEW OF GLOBAL EQUITY MARKETSAll percentages are in Canadian dollars. |
||||
|
Country |
Index |
Return |
Change |
Year-to-date return in 2025 |
|
Canada |
S&P/TSX |
3.86% |
|
29.96% |
|
United States |
S&P 500 |
-0.26% |
|
14.19% |
|
|
Nasdaq |
-1.95% |
|
17.98% |
|
International stock markets |
EAFE |
0.11% |
|
23.49% |
|
Emerging markets |
|
-2.89% |
|
25.71% |
|
China |
MSCI China |
2.99% |
|
28.74% |
The return shown is the total return, which includes the reinvestment of income and capital gains distributions
Source : Morningstar Direct.
RETURN ON CANADIAN BONDS |
|
| Index | Return from January 1 to November 30, 2025 |
| FTSE Canada Universe Bond Index | 0.27% |
Source : Morningstar Direct
Data influencing the markets
CANADA |
UNITED STATES |
Recession Indicator |
|
Moderate |
Moderate |
Policy Rates |
|
2.25% |
3.50% – 3.75% |
|
No change was announced on December 10, 2025. The markets do not anticipate any further rate cuts between now and the end of 2025, nor in 2026. According to the BoC, GDP growth is expected to remain positive in 2026.
|
The U.S. Federal Reserve cut its key interest rates on December 10, 2025. The lack of data during the government shutdown complicates the Fed’s job. Uncertainty surrounding inflation and employment persists. We could see two more rate cuts in 2026, but nothing is certain. |
Employment Situation |
|
|
Jobs added: 53,600 Expectations: loss of 5,000 |
Jobs added: 64,000 Expectations: 45,00 |
|
Wage growth: 4.0% Expectations: 4.0% |
Wage growth: 3.5% Expectations: 3.4% |
|
Unemployment rate: 6.9% Decrease: 0.4% |
Unemployment rate: 4.6% Increase: 0.1% |
Inflation |
|
|
September: 2.2% Change: none |
September: 3.0% Change: 0.1% |
Overall, what are the economic indicators telling us?
Benchmark rates (Canada, Europe and the United States) 
- The U.S. Federal Reserve lowered its rates, but the minutes of the discussions reveal some reluctance to make further aggressive cuts. The market is anticipating two more cuts in 2026. In Canada, there is no indication of multiple cuts in the coming year.
- Europe is on hold and will react to future economic data. Inflation is lower there and the impact of tariffs is not yet fully known.
- The U.S. Supreme Court’s ruling on the validity of tariffs could have an impact on inflation, economic growth, and monetary policy around the world.
Global Purchasing Managers’ Index
- Manufacturing segment: stable, with close to half of the 30 countries in this segment posting a reading above 50 (expansion).
- Services segment: continues to hold steady and remains robust.
Inflation rate
Overall: stable, continuing to move in the right direction.
Factors to watch
- Deregulation in various industries in the United States: this should help maintain economic growth and encourage investment, but other countries, such as Canada, will have to follow suit or risk losing competitiveness.
- Trade tensions: supported by the indiscriminate use of tariffs, they could cause an economic slowdown and increase inflation. This situation could lead to an episode of stagflation, the most negative economic scenario. Renegotiation of the Canada–United States–Mexico Agreement (CUSMA) will begin in 2026.
- Inflationary scenarios: if they result in keeping yields on five-to-ten-year maturities at high levels, they should definitely be avoided, as they would slow business investment and the reshoring of production lines to the United States.
- Geopolitical uncertainty: Russia-Ukraine war, regional conflicts in the Middle East, tensions between the U.S. and China, possible annexation of Taiwan by the Chinese government.
fdp tactical views – October 2025
- We maintained the weighting of equities in the tactical allocation strategy.
- Economies are slowing but are still growing. Large U.S. companies are posting solid earnings, which is keeping the stock markets in positive territory.
- In the United States, we maintained our equity weighting.
- We maintained our positioning in Europe and Japan.
- We reduced our exposure to emerging market equities and increased the weighting of quality U.S. small caps. Lower interest rates in the United States, new quantitative easing measures, and a stable economy all argue in favour of a position in small caps.
- In the fixed income component, we increased the weighting of high-yield bonds and foreign bonds. We reduced our position in Canadian bonds. We hold various types of debt through U.S. and emerging market government issues.
We continue to favour stocks in developed countries and focus on risk management.
To learn how our funds performed:
Senior Manager, Asset Allocation and Alternative Strategies
Data source : Bloomberg
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