Canada’s economy is showing signs of resilience as policymakers navigate geopolitical uncertainty and a shifting inflation picture.
BNN Bloomberg spoke with Christine Tan, portfolio manager at SLGI Asset Management, about the Bank of Canada’s latest decision, energy prices, U.S. bank earnings and the economic effects of AI spending.
Key Takeaways
- Tan expects the Bank of Canada to hold its policy rate steady throughout 2026 as its base-case scenario.
- An interest-rate hike would require a prolonged escalation of the Middle East conflict and sustained pressure on energy prices.
- The Bank of Canada expects inflation to return to about two per cent by early 2027, assuming oil prices remain between US$70 and US$75.
- Strong U.S. bank earnings reflected robust trading, investment banking, consumer activity and loan growth.
- Economic resilience and persistent energy prices could spread inflation through more of the consumer price index and pressure central banks.
Read the full transcript below:
ROGER: Oil prices, as we just mentioned, are up slightly today after the U.S. struck Iran for the fifth straight day. Despite inflation risks from the conflict, the Bank of Canada continues to hold rates, as it did yesterday, saying that inflation caused by higher oil prices didn’t seem to be spreading to other sectors. Let’s get more from Christine Tan, portfolio manager at SLGI Asset Management. Christine, thanks, as always, for joining us.
CHRISTINE: Morning, Roger. Thanks for having me.
ROGER: Are you surprised at what the bank said — that it’s not spreading to other sectors — and that they held the line here?
CHRISTINE: No, not really. Our expectation was that the bank would stay steady this meeting. I think it’s the sixth meeting in a row, and when you listen to what the governor spoke about in the press release afterward, they were very cautious. But one thing that I wouldn’t say surprised me, per se, but was quite constructive: They were actually quite constructive on growth.
So, on the inflation side of the equation, in terms of messaging, they have been quite consistent. In terms of right now, it still looks to be pretty contained to gasoline prices, and what we’re looking for is for it to kind of spread into other parts of the CPI basket.
And he had a couple of questions that came in in terms of what he’s looking for — levels of oil — and he again reiterated it’s not necessarily about the level of oil; it’s really about the persistence, i.e., how high, how long does it stay at that heightened level, and also, to some extent, the strength of demand. Because companies have to feel confident that they can pass through that higher energy price, which really goes into everything, whether it’s transportation of goods — in some cases, petrochemicals go into the manufacturing of a wide variety of goods as well.
So, he really laid out that path that sort of indicated, you know, oil needs to be higher for longer, so perhaps north of 80 for months at a time, and he has to start seeing it come through other parts of CPI before interest-rate hikes might even be a consideration.
He also did note that, you know, as part of their updated outlook, their expectation is inflation will get back to around two per cent by the beginning of 2027, and that’s assuming oil prices between 70 and 75.
And you just showed a chart earlier of where WTI has been, and certainly 70 to 75 is above where oil was prior to the conflict. But the surprising part, perhaps, was how optimistic they sounded on the economic growth front.
But if you look at some of the underlying data, factory sales actually are at a record level — 78.1 billion in manufacturing sales — and I know it sounds counterintuitive, given the tariffs and a lot of the trade conflict with the United States. That’s where it’s been hitting us the hardest. But auto vehicle sales have actually been picking up in the most recent month as well.
So, the economy side — the consumer has been resilient. Wage growth in the last employment report was 3.3 per cent. So, it is somewhat keeping up with inflation. Now, the average Canadian is having to draw down a little bit on their savings rate, but the resilient consumer — the governor called out that the housing market has stabilized. Certainly not growing the way it has been, but stabilizing and not detracting from growth is a positive.
So, I think that side of the narrative was perhaps a bit more optimistic than we had expected, but in a good way.
ROGER: All right. Now, you expect the rates to stay steady throughout 2026.
CHRISTINE: Correct. That’s our base case.
ROGER: What could derail it one way or the other? Either maybe push toward a hike or the other way toward a cut.
CHRISTINE: That’s a great question, Roger. So, we think about that all the time. For a hike, it would have to be, you know, a reacceleration of the Middle East conflict, which we kind of are seeing at the moment. But more importantly, it’s just a reacceleration with no end in sight, or perhaps any indication that the two parties are just so far apart that we don’t see the potential for de-escalation.
I think there seems to be interest on both sides now. What they want from each other perhaps remains quite far apart, but overall, there does seem to be interest in finding some sort of resolution. So, that’s probably the largest and most significant risk to the upside.
ROGER: The bank earnings in the U.S. — your thoughts on those and any indicators? Does that indicate what we might expect from the Canadian banks?
CHRISTINE: U.S. bank earnings were, in one word, spectacular. And it was — actually, the headline numbers were strong. All the major banks did report very strong earnings. A couple of them actually recorded record-high earnings. One of them recorded the highest quarterly earnings we’ve seen in more than a decade.
But when you look into the internals, it actually looked even better, if that’s possible. And what I mean by that is it indicated a U.S. economy that was quite broad in terms of strength.
So, we all, as expected, trading revenue was very strong. Whenever you have markets that are, first of all, doing very well, but also there’s volatility in these markets, so what that means is a lot of trading, whether it’s hedge fund trading or just institutional investors trading or retail investors trading, depending on which client base each bank deals with.
Investment banking was obviously very strong, and that, again, is a good indicator of corporate confidence because, if you’re the CEO of a company, typically you would start doing more new issuance to invest in your business or do more M&A when you’re feeling better about the outlook. So, that piece of it was a strong report on the status of the corporate U.S. economy.
Perhaps not a surprise after so many years of strong AI spending, but the consumer was actually quite resilient as well. So, you heard from the banks, the money centre banks, that, on the credit card side, consumers were quite resilient. You were seeing that sort of K-shaped divide that you and I have spoken about.
The wealthier consumers who have higher incomes, who own more assets, certainly they are spending a lot more. Not only are their investment portfolios doing really well, property prices have held in. So, the lower-income consumer, though, wage growth is keeping up somewhat with inflation as well.
And then the last piece is loan growth. So, one of the outcomes of the One Big Beautiful Bill was deregulation, and I think you’re starting to see a lot of that. Whether it’s banks being able to lend more because they have a lot of capital on their balance sheets that was underutilized, they’re also doing more buybacks. These are all accretive to earnings.
So, really, across the board, when you look at the underlying numbers, it painted a fairly constructive picture of the U.S. economy. Now, the only caveat I would put to that is that a lot of the strength in the U.S. economy is — you can still kind of link it back in some way, whether it’s a primary direct beneficiary or a secondary beneficiary, to the very high level of AI capital spending.
We’re talking hundreds of billions of dollars, and that’s impacting everything from construction to the utility sector to, obviously, the wealth effects. So, that’s the only caution that there is. It is a very single, strong engine to the economy.
ROGER: All right, and I want to get in this one last question about one of your notes. You talk about investors underestimating the combination of economic resilience and inflation risk happening at the same time. Just got about a minute, if you can just get a little bit into that.
CHRISTINE: Sure. Now, I think that message can apply both to the U.S. and Canada — obviously, more so to the U.S. The economy is stronger there for all the reasons we just spoke about.
But even in Canada, if you listen to what we talked about earlier in terms of the Bank of Canada’s messaging and the data that we’re seeing, the economy is resilient. So, we went from a few weeks ago talking about a technical recession to April sort of looking like it grew, on an annualized basis, 2.5 per cent.
The Bank of Canada is expecting the Canadian economy to grow at 0.7 per cent this year, which is pretty good considering our population’s not growing and all of the trade headwinds we’re facing.
So, that resilience, combined with perhaps stickier energy prices, could mean that you could see more transmission of inflation through the rest of the CPI basket, which might actually cause the Bank of Canada to have to make a decision. Now, on the Federal Reserve side, certainly that’s more of a consideration and more of a pressure.
ROGER: All right, we’ve got to wrap it up there. Christine, thanks for coming back, sticking around. Appreciate it.
CHRISTINE: Thanks, Roger.
ROGER: Christine Tan, portfolio manager at SLGI Asset Management.
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This BNN Bloomberg summary and transcript of the July 17, 2026 interview with Christine Tan are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
