Canada
In the Alpha report, we maintain our bullishness on the equity market. We are optimistic that the cash-fueled cycle will evolve into a leverage-driven one, with the AI capex cycle acting as the "bridge" between the two. Our view is easily falsifiable. If the 10-year yield starts moving against us, we will pull the plug on the cycle. One reason to fret is that tariff revenue has now become critical to the equity bull market. Without it, bonds could riot.
Monetary policy surprises shape curve trade returns. We show where steepeners and flatteners offer the best risk-reward in today’s market.
We maintain our 12-month US recession probability at 60%. However, until the “whites of the recession’s eyes” are more clearly visible, we would refrain from moving to a fully defensive stance.
The Bank of Canada continues to hold its policy rate amid trade uncertainty and shows little concern about the potential economic damage from tariffs. We judge the risks differently and view a bet on more rate cuts this year as attractive.
