Insights 
VT 
The US PCE report for July and Canadian GDP figures are key data points of the session. The Core PCE is projected at 2.9% year-on-year and 0.3% month-on-month. The market response is expected to remain minimal unless there are noticeable deviations, as the PCE can often be predicted from the US CPI and PPI reports. Fed Chair Powell anticipates the Core PCE to mirror the 2.9% year-on-year estimate.
Labour Market Data Release
Attention will shift to the upcoming labour market data release next week. The forthcoming data includes ISM PMIs, ADP, and NFP report.
The Canadian GDP for June is forecasted at an increase of 0.1% versus a prior decline of 0.1%, with the Q2 annualised figure expected at -0.6% compared to a previous 2.2%. This may not substantially impact the Bank of Canada due to other improving timely data and an underlying inflation rate of approximately 3%.
In the market, 54 basis points of easing are priced in for the Fed and 24 basis points for the BoC. By 2026’s end, 132 basis points are priced for the Fed, and 33 for the BoC. Many rate cuts appear priced in for the Fed, but future data will ultimately influence these expectations.
Furthermore, the final University of Michigan Consumer Sentiment report is due later, though its impact is expected to be minor unless inflation expectations undergo significant revisions.
Anticipated Market Shifts
With today’s Core PCE report expected at 2.9%, we don’t anticipate a major market shift. Federal Reserve Chair Powell essentially guided to this number in his recent speeches, removing much of the surprise factor. The real focus for us is already shifting to next week’s crucial employment data, including the NFP report.
The market is currently pricing in about 54 basis points, or two full rate cuts, from the Federal Reserve by the end of this year. We think this is overly optimistic given the persistent strength we’ve seen in the job market through the first half of 2025. With wage growth, as seen in recent reports, remaining stubbornly above 3.5%, the Fed has little reason to rush into an easing cycle.
Considering this view, we see an opportunity in the derivatives market to position for fewer cuts than are currently priced. This could involve using options on SOFR futures to bet against the aggressive easing timeline before next week’s pivotal jobs data is released. A payrolls number anywhere above 180,000 would likely cause a rapid repricing of these expectations and validate a “higher for longer” stance.
In Canada, the market is pricing in just one 24 basis point rate cut, which faces its own challenges. While today’s GDP figures may look weak, we are paying more attention to the underlying inflation rate, which has been stuck around 3% for most of 2025. Looking back at the data from this year, the Bank of Canada has shown it is willing to look past soft growth as long as inflation remains its primary concern.
