By Douglas Porter

July 10, 2026

Neither rain nor heat nor an end to the Persian Gulf ceasefire stays these equities from the swift completion of their appointed rallies. The S&P 500 is back within 1% of its June 1st record high, rebounding from some mid-week wobbles on higher oil prices. After President Trump declared that the ceasefire with Iran was “over”, WTI briefly snapped up by almost 10%, and product prices jumped even more aggressively. Russia’s clampdown on diesel exports pushed those prices up sharply.

As we are fond of pointing out, while crude oil at around $71 is up by less than 10% from pre-war levels, both gasoline and diesel prices still sit 30% above those norms. And, ultimately, that’s what drives inflation, not crude oil. By Friday, the administration suggested that the U.S. has agreed to new talks with Iran, but that the ceasefire was—”in no uncertain terms”—over.

Even so, stocks are rarely troubled for long by such trifling details. Not with earnings getting steadily revised higher, and upbeat expectations for the coming Q2 results (which will begin to roll out in earnest next week). This week’s slate of economic data certainly didn’t stand in the way of equities. Nor did the hotly anticipated FOMC Minutes.

The latter gave away few new details of Kevin Warsh’s first meeting as Chair, other than some members would have been comfortable hiking rates now, but many others believe that there is still a case for eventual cuts, should inflation recede close to the 2% target. In other words, the much-maligned dot plot had mostly already told a 1,000-word story in one picture.

While it was largely second-tier economic releases this week, things step up a notch next week with Tuesday’s June CPI, and Thursday’s retail sales for the same month. On inflation, while pump prices have been stickier than crude, they still fell 10% in June, or the fourth largest monthly decline in the past decade. There’s not much of a seasonal adjustment in June gasoline prices, so that alone will carve 4 ticks from overall prices.

As a result, we and the consensus are looking for the headline CPI to drop 0.1%, clipping the annual inflation rate by 3 ticks to 3.9%. However, core prices are expected to grind up another 0.3%, keeping the annual core trend steady at 2.9%—precisely where core CPI inflation stood a year ago.

We’ll also be keeping an eye on the Treasury Budget Statement for June, which is expected to be released on Monday. The CBO estimates a $126 billion deficit for the month, which, when adjusted for payments timing, is up $56 billion from a year ago. But almost that entire deterioration can be explained by $50 billion paid in tariff refunds last month, which left net customs duties with an outflow of $26 billion versus an inflow of $27 billion in June 2025.

Even with the swings in tariff revenues, the rolling 12-month budget deficit should clock in at $1.81 trillion, down somewhat from $1.88 trillion a year ago—or 5.7% of GDP over the past year. For perspective, the deficit in FY2019, prior to the pandemic, was 4.7% of GDP. So, while U.S. government finances are no doubt in need of medium-term repair, the task is still manageable.

The still-hefty budget deficit is not the major focus of Treasuries, but it is arguably a factor keeping yields much loftier than pre-Covid levels. Yields spent most of the week grinding higher, pushed both by the firming in energy prices, but also by the gnawing market view that the next Fed move will be to hike.

Ten-years broke back above 4.5% this week and are now sitting at their highest level in the past year, aside from a brief spike above 4.6% in mid-May. At the same time, two-year yields pushed up 6 bps to almost 4.2%, well north of the 3.75% upper end of the Fed funds target range, as markets are again priced for more than one full Fed hike by year-end.

Even with the renewed market conviction around Fed hikes, the Canadian dollar managed to claw a bit higher. After testing 18-month lows in recent weeks, the loonie nudged up 0.6% to just above 70.8 cents ($1.412/US$). While such a small move would normally merit no mention, the currency was able to firm even as the euro and yen were flat. Higher oil prices likely did the currency no harm, although the link between the loonie and crude has been nearly non-existent in recent years.

That complete lack of correlation frankly remains a bit of a mystery, given Canada’s status as a major oil exporter. This week’s merchandise trade report serves as Exhibit A, as May’s surplus jumped to a two-year high of $4.2 billion while oil prices were peaking.

The Canadian employment report for June also offered some modest support for the currency, as the economy produced 18,200 net new positions, a bit better than expected following the rollicking 87,800 May result. As well, the unemployment rate fell another tick to its lowest level in almost two years at 6.5%.

(As an aside, probably not a single Canadian economist would have guessed a year ago that the jobless rate would fall by almost half a point even as auto and metals tariffs stayed in place and the USMCA uncertainty continued to dangle in July 2026.)

But the report was no big show of strength, as the gains were almost all part-time jobs, with a heavy hint of help from temporary World Cup hiring.

A third factor that may be providing the currency with some support is the sudden rush of announcements around major projects in Canada. Just in the past week alone, we have seen an agreement on a possible pipeline from Alberta to the B.C. coast, the concept of an Alberta to Ontario pipeline, Ottawa picking a preferred supplier of the massive submarine contract (the Germans, with an assist from Norway), and a $13 billion data centre in Alberta (by Meta).

Of course, the timing of all these mega investments is not certain, and some may not get truly underway for years (or possibly ever). But the rush of announcements may help strengthen the medium-term outlook—and general narrative—for the Canadian economy, at a time when trade relations with the U.S. remain cloudy, with a chance of rain.

The Bad News Bears was released 50 years ago—50 years!—and although it’s ostensibly a kids movie, it’s often ranked as one of the best 20 sports movies of all time; Rolling Stone ranks it #3. (Various lists have number 1 flicks as diverse as Rocky, to Raging Bull, to Hoosiers, to Hoop Dreams, to Chariots of Fire, to Slap Shot! Personally, I can watch Moneyball again and again, but that’s probably due to the fact that it’s all about maximizing scarce resources, the very definition of economics.)

Esquire magazine sums up Bad News succinctly: “Ragtag kids’ baseball team slowly gets it together, with the help of gruff but lovable coach. The Bears lose just barely, are allowed to drink beer anyway.” Well, it was the 70s, after all.

Policy Contributing Writer Douglas Porter is Chief Economist for BMO.