Mixed bank earnings, AI turmoil and paused rate cuts
Earnings season wrapped up for U.S. banks this week, and the story was consistent: booming equity trading revenues (driven by recent market volatility) were offset by weaker results in investment banking. The consumer side stayed resilient, according to Bank of America CFO Alastair Borthwick; loan quality remains solid, with employment and consumer spending still healthy. Nonetheless, weaker investment banking and fixed-income segments continued to weigh on profitability, showing that beneath headline strength lies a more complex story.
Meanwhile, semiconductor stocks faced fresh turmoil, as the U.S. Commerce Department announced tougher export controls on AI-related chips bound for China. Nvidia disclosed it would incur a massive $5.5 billion charge tied directly to restrictions, while AMD (Advanced Micro Devices) warned of nearly $1 billion in related expenses. Nasdaq futures dropped sharply following the announcement. Adding fuel to the fire, Dutch chip-equipment giant ASML missed booking estimates, sparking further sector-wide concerns. The results showed broader macroeconomic strains: trade tensions between the U.S. and China continued to disrupt key supply channels, and the early-year excitement surrounding AI has clearly faded.
Back home, the Bank of Canada (BoC) decided to pause its easing cycle. It appears that policy direction now depends far more on external factors — especially U.S. trade policy — than on Canada’s domestic economic performance. The BoC is effectively walking a tightrope: slower demand will keep inflation tame, but the trade war with the U.S. could also bring supply inflation. However, we believe these inflation fears might be overblown. Canadian inflation is primarily driven by housing costs rather than broad-based economic overheating. Ultimately, the BoC hasn't closed the door on further rate cuts, but it is signalling it won’t rush to lower rates before we see what the actual damage from the tariffs will be. Right now, policymakers are cautiously watching and waiting to see if U.S. President Trump is bluffing or if he’s laid his cards on the table.
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