The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.
1027 ET - A soft 1Q GDP report should throw a proverbial wet blanket on the prospect of rate hikes from the Bank of Canada, says Douglas Porter, chief economist at BMO Capital Markets. "The economy has clearly been struggling to grow since the start of the trade war," Porter says. Canada has recorded GDP declines in three of the last five quarters, reflecting the squeeze posed by US tariffs and a slowdown in population growth reflecting a sharp curtailment in immigration entry. "While there will be plenty of debate over whether this constitutes a recession -- we would say, 'no, not really' -- there is little debate that the economy has struggled," Porter says. (paul.vieira@wsj.com; @paulvieira)
1007 ET - As economists predict how artificial intelligence would impact the future of productivity and its relationship with downward inflationary pressure, some Fed officials have weighed in this week. Yesterday, St. Louis Fed President Alberto Musalem said it would be risky to rely on the prospect of higher productivity growth to solve the inflation problem today. This morning, Fed governor Michelle Bowman said the surge in AI-related investment may be exerting some supply chain pressures, but strong productivity growth may put some downward pressure on inflation because of lower production costs in the medium term. "Supportive supply-side policies, including less restrictive regulations and lower business taxes, will also likely favor these conditions," Bowman said at a conference in Iceland. (jessica.coacci@wsj.com)
0956 ET - The third decline in GDP in the past five quarters should cool talk of Bank of Canada rate increases, says Dominique Lapointe, director of macro strategy at Manulife Investment Management. Canada GDP fell 0.1% annualized in 1Q, after an upwardly revised 1% decline in 4Q. To be sure, the conflict in the Middle East risks pushing core inflation upward, and the BOC has mused about the possibility of increases should price increases start to spread. But with oil-tanker traffic through the Strait of Hormuz still largely blocked, "the starting point for Canada in terms of both growth and inflation now looks much weaker, limiting businesses' ability to pass on higher input prices to consumers," Lapointe says, sticking to his call for not rate-policy change in 2026. (paul.vieira@wsj.com; @paulvieira)
0953 ET - The Bank of Canada is unlikely to overreact to the shock 0.1% annualized 1Q drop in GPD, says Royce Mendes, managing director at Desjardins Capital Markets. He notes that Canada's per-capita GDP rose nearly 1% annualized in 1Q. "The fact that per-capita GDP actually rose will limit the central bank's ability to respond to the slowdown," Mendes says. Mendes has stuck to his call about no change in the BOC's rate policy in 2026, and he says fixed-income traders are beginning to scale back bets on rate increases amid the weaker-than-expected GDP report. (paul.vieira@wsj.com, @paulvieira)
0949 ET - Officially, Canada's GDP dropped on an aggregate basis in 1Q, or the second straight quarterly decline. Yet Statistics Canada reports that per-capita GDP rose in 1Q, 0.2% on a nonannualized basis. Economists view per-capital GDP as a gauge on living standards. And for part of this decade, analysts in Canada put much more focus on per-capita GDP because of the previous policies under former PM Justin Trudeau, who encouraged an aggressive intake of immigrants, on a temporary and permanent basis. Analysts had argued that population growth was masking underlying weakness in the economy. The Canadian data agency says per-capita GDP grew because the population declined for a second straight quarter. That population drop reflects a rollback of the immigration policies. (paul.vieira@wsj.com, @paulvieira)
0944 ET - Canada's 1Q GDP drop was partly fueled by a fifth straight quarter of a decline in business investment -- a reflection of how the dark cloud of U.S. tariff policy has a stranglehold on the country's economy. Drops in both business and government spending offset a rise in inventories and a 1.5% annualized jump in household spending. CIBC Capital Markets notes that the household savings rate dropped further in 1Q to 3.5%, or the lowest level in two years. "That doesn't bode well for consumption in 2Q," says Katherine Judge, a CIBC economist. (paul.vieira@wsj.com; @paulvieira)
0930 ET - Canada's shock 1Q drop in GDP marks the second straight quarter of declining output -- and that is likely to spur recession talk, as two straight quarters of declining output is the viewed as the technical definition of a recession. In the U.S., the National Bureau of Economic Research makes an official declaration on recessions. The closest thing to an NBER-like body in Canada is the CD Howe think tank's Business Cycle Council. It defines a recession as a "pronounced, persistent, and pervasive decline in aggregate economic activity." Canada's 1Q drop was a relatively muted 0.1% annualized decline, following a 1% drop in 4Q, and Statistics Canada estimates that GDP rose 0.4% in April. (paul.vieira@wsj.com; @paulvieira)
0921 ET - The Japanese yen could remain weak in the near term despite recent interventions to bolster the currency, ING's Chris Turner says in a note. The Ministry of Finance said Friday that Japan spent 11.7349 trillion yen, or $73.69 billion, on interventions between April 28 and May 27. However, the yen only briefly recovered before turning weaker again. Unless the Bank of Japan can drive real interest rates adjusted for inflation higher, the yen will struggle to recover, Turner says. "Until then, we expect [dollar versus the yen] to stay bid near 160 yen over coming months and possibly push into the 162-163 area." The dollar trades steady at 159.27 yen. (renae.dyer@wsj.com)
0920 ET - There's no evidence in Germany of passthrough from the energy-price shock into more underlying indicators of inflation, Commerzbank's Ralph Solveen says in a note. Headline inflation declined to 2.6% in May from 2.9% in April, due to a temporary cut in energy taxes and food prices that cooled more sharply than typical of this time of year, he says. While there was a rise in core inflation--to 2.5% from 2.3%--that can be explained solely by package tours, due to a one-off effect in April, he says. Though there currently lacks evidence of an additional boost to inflation from higher energy prices, this will likely change unless the conflict in the Middle East eases significantly and energy prices continue to fall, Solveen says. (edward.frankl@wsj.com)
0918 ET - The decline in German inflation this month is mainly attributable to a cut to fuel duties, without which the level would be about 0.2 to 0.3 percentage points higher, says KfW chief economist Dirk Schumacher in a note. Headline inflation was 2.6%, down from 2.9% in April. Price pressures in the services sector nevertheless remain uncomfortably high for the European Central Bank, and will remain so even if the Strait of Hormuz reopens soon, he says. The ECB will likely raise its key rate by a quarter-point at June's meeting, though this might be more a symbol of its readiness to act rather than reflecting genuine concern about inflation, he says. (edward.frankl@wsj.com)
0913 ET - Canada's economy looks to be in softer shape than anticipated, having now contracted in three of the last five quarters. The downturn in activity in the first quarter was mild, with GDP slipping 0.1% annualized against economist expectations of 1.5% growth. The contraction for the prior quarter was revised up to 1% from 0.6% previously, and growth in the third quarter of 2025 was revised lower to 1.9% from 2.4%. On a monthly basis, industry-level GDP dipped 0.1% on-month in March after a 0.2% rise in February and there was no change in January where it was previously estimated to have edged up 0.1%. On a more optimistic note, GDP in April is estimated to have grown 0.4%, the strongest since last July. (robb.stewart@wsj.com; @RobbMStewart)
0902 ET - Treasury yields are on path for a sharp monthly decline amid hopes the U.S. and Iran could be near a deal to reopen the Strait of Hormuz. Oil futures fall, with the WTI below $90 a barrel. The WSJ Dollar Index gives up overnight gains and is flat. Markets turn their focus to jobs data due next week, including the last payrolls before the Fed's June 17 meeting. The 10-year is at 4.447%, down from 4.454% yesterday. The two-year slips to 4.021% from 4.024. (paulo.trevisani@wsj.com; @ptrevisani)
(END) Dow Jones Newswires
May 29, 2026 10:27 ET (14:27 GMT)
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