Last week, North American equity markets ended lower despite robust US bank results and softer-than-expected US inflation data, weighed down by escalating geopolitical tensions and rising concerns over the sustainability of the AI trade. WTI crude oil prices spiked to US$80 per barrel, driven by intensified fighting between the US and Iran for control of the Strait of Hormuz and President Trump’s reinstatement of a blockade on Iran. As a result, the energy sector was the best performer on both the TSX Composite and the S&P 500.

Wall Street banks delivered exceptionally strong top-line results, fuelled by a surge in dealmaking and equities trading. Shares of Goldman Sachs surged 9.0%, while JPMorgan Chase, Bank of America, and Morgan Stanley rose 2.5%, 1.9%, and 0.4%, respectively. High-profile transactions—including the SpaceX IPO, a major Alphabet share sale, and AI-driven financing—drove investment banking fees and transaction pipelines to multi-year highs. However, investors were quick to penalize institutions showing cracks in cost control or forward momentum. Citigroup shares tumbled 5.3% as rising expense concerns overshadowed its results, while Wells Fargo slipped 2.7% after issuing an unchanged forecast despite a strong quarter.

Despite the strong quarterly performance, bank executives painted a mixed picture of the broader economy. Leaders from JPMorgan, Bank of America, and Wells Fargo highlighted a remarkably resilient US consumer but cautioned that persistent inflation, high asset valuations, tight monetary policy, and geopolitical risks could eventually disrupt this favourable environment.

Elsewhere in financials, BlackRock shares jumped 6.6% after assets under management hit a record US$15 trillion. The firm pulled in US$192 billion in net inflows across its iShares ETF franchise, pushing its operating margin to a five-year high while quickly expanding into higher-fee alternatives via US$28 billion in recent private market acquisitions.

In the technology sector, IBM suffered its worst trading day on record, plummeting 25% following preliminary second-quarter results that missed expectations. Management attributed the miss to clients suddenly shifting spending from software towards hardware ahead of anticipated price hikes. Escalating AI workloads are favouring memory chipmakers like Micron and SK Hynix, causing large IBM software deals to stall and raising fears that AI growth may negatively impact its core business.

Last week, a flurry of US bank earnings was met with new bank bond issuances, while weaker-than-expected US inflation data rallied short-term treasuries, pushing the one-year yield down six basis points to close the week at roughly 4%. The Bank of Canada (BoC) left interest rates unchanged, and longer-term Japanese bonds rallied following comments from the country’s finance minister. 

The BoC held its key interest rate at 2.25%, as widely expected. The Governing Council stated the current policy rate was appropriate to sustain economic recovery and bring inflation back to its 2% target. Governor Tiff Macklem emphasized that the economy is facing rising pressures from the Middle East conflict, and that the path for global inflation is highly dependent on how the conflict unfolds. Additionally, the BoC dropped its reference to consecutive rate hikes in its accompanying Monetary Policy Report, implying optionality to act in either direction—neither committing to future tightening or easing. 

Longer-term Japanese bonds rallied, yields declined, following comments from Finance Minister Katayama, who encouraged domestic households and pension funds—including the Government Pension Investment Fund (GPIF), to bolster investment in domestic Japanese assets. Longer-term bonds rallied on the news, as the 20-year government yield fell by over 12 basis points to close the week at 3.59%. The GPIF, one of the world's largest pension funds with US$1.8 trillion in assets (according to Reuters), manages national Japanese pension and employee insurance reserves. Given the GPIF’s scale and asset allocation mandates, a future tilt towards domestic markets could necessitate the sale of foreign holdings—potentially swaying both local and foreign asset valuations. 

Following a week of strong second quarter US bank earnings, Goldman Sachs, JPMorgan and Morgan Stanley raised a combined $28 billion in USD-denominated investment grade bonds— capitalizing on strong investor demand and a historically tight credit spread environment. Goldman Sachs executed a three-part, US$10 billion deal, while JPMorgan and Morgan Stanley each completed separate US$9 billion, four-part offerings. According to Bloomberg, Goldman Sachs issued the longest-maturity, roughly 30-year fixed-to-floating rate bond, priced to yield approximately 1.13% above the risk-free US treasury benchmark with a 6.215% coupon.