Global Cues, Firm Commodity Prices Point To Another Firm Start On Bay Street

Canadian equities are set for a higher open, extending yesterday's record close, buoyed by positive global sentiment, commodity price gains, and Fed rate cut expectations. Q2 2025 earnings were mixed, with strong results from Canadian Natural Resources and MDA Space contrasting with declines at Restaurant Brands International and BCE Inc. Economic indicators show improvement, as the Ivey PMI rose to 53.3 in June and the S&P Global Canada Composite PMI improved to 48.7 in July, signaling easing economic contraction. This comes as Canada faces a new 35% U.S. tariff.

Analysis

The Canadian equity market is exhibiting strong upward momentum, with the S&P/TSX Composite Index reaching a new record high, underpinned by favorable global monetary policy expectations and rising commodity prices. West Texas Intermediate crude, gold, and silver are all posting gains, providing a tailwind for the resource-heavy index. This optimism is further supported by improving domestic economic indicators; the Ivey PMI for June registered a 53.3, signaling expansion for the first time in three months, while the July S&P Global Canada Composite PMI improved to 48.7, indicating a softer economic downturn. However, this bullish macro environment is contrasted by a divergent Q2 2025 earnings season and a significant geopolitical headwind. On one hand, companies like Canadian Natural Resources reported a substantial increase in adjusted net earnings to $2,459 million and MDA Space saw its net income double. On the other hand, firms such as Restaurant Brands International and BCE Inc. posted significant year-over-year declines in earnings, with BCE's adjusted net earnings falling nearly 17%. The most critical risk factor is the imposition of a 35% U.S. tariff, which threatens to disrupt trade and could temper the market's positive sentiment.

Key Decisions for Investors

• Given the bifurcated earnings results, investors should prioritize stock selection over broad index exposure, favoring companies with demonstrated earnings growth like Canadian Natural Resources (CNQ) and MDA Space (MDA) over those showing weakness like Restaurant Brands (QSR) and BCE (BCE).
• It is crucial to monitor the real-world impact of the 35% U.S. tariff on export-oriented sectors, as this poses the most significant near-term risk to the current market rally.
• While the market is at a record high, positions could be maintained with a bullish tilt on commodity-linked equities, but investors should watch upcoming economic PMI data to confirm that the nascent economic recovery is durable enough to withstand new trade frictions.