Last week, North American equity markets retreated as escalating attacks in the Middle East sent WTI crude oil prices soaring above US$100 per barrel. The US began striking Iranian oil tankers, while rapid Houthi territorial gains threatened the Bab al-Mandab Strait, which handles 7% of global oil output per Kpler data. The continued escalating tensions in the Middle East and elevated trade tensions in North America pushed most sectors lower last week. While the energy sector in the US broadly outperformed its respective index as rising oil prices helped support share prices, most other sectors were negative last week. 

Cross-border trade tensions are intensifying. Canada enacted $27.6 billion in retaliatory tariffs on US goods following collapsed trade talks. Consequently, President Trump urged a US boycott of Bombardier unless the Canadian aircraft manufacturer shifts production stateside. Bombardier pushed back, highlighting its extensive US workforce across more than 20 states and its reliance on American-made components.

Enbridge announced plans to further expand into the US with the acquisition of Tallgrass Energy’s crude oil business. The US$2.55 billion deal includes a 75% interest in the Pony Express pipeline—a 460,000-barrels-per-day pipeline that runs from the Rocky Mountains to a major pricing hub at Cushing, Oklahoma. Shares of Enbridge declined last week as the company plans to pay for the acquisition through the issuance of 38.9 million shares for total proceeds of $2.6 billion.*

Copper prices also surged, hitting a record high on the London Metal Exchange and climbing 16% year-to-date. Shares of major copper miners Freeport-McMoRan and Southern Copper Corp are up roughly 35% over the same period. Prices were fuelled by US buyers stockpiling the metal ahead of potential import tariffs, alongside electric grid and AI data centre expansions.

Oracle shares fell 1.7% despite reporting strong earnings, as surging enterprise AI demand doubled its cloud infrastructure revenue to help build a massive US$664 billion backlog. However, heavy data centre spending and the company’s US$125 billion in debt continue to pressure its free cash flow compared to better-capitalized peers.

Meanwhile, robust AI product demand provided a boost to Adobe. Shares rose 1.4% after beating quarterly revenue estimates and growing its AI-first annual recurring revenue by over 150%. Yet, concerns over leadership turnover still weighed on sentiment.

The market is still seeing strong AI demand while simultaneously navigating escalating global supply chain threats and trade disputes.

Last week, a global bond selloff intensified. Bond prices declined and yields rose sharply across the curve, primarily fuelled by escalating geopolitical tensions in the Middle East and surging energy costs, with WTI crude oil breaking above US$100 per barrel. Against this backdrop of oil-driven inflation, investors recalibrated their expectations for central bank rate hikes and the European Central Bank's (ECB) released its latest policy decision. Before the latest US bond auction, the US government attempted to support bond prices only to be humbled by the market. Lastly, a long-term US Treasury auction yield reached its highest level in 25 years, exhibiting strong investor demand.

Treasury secretary Scott Bessent announced the US government would buy US$6 billion in government debt. This announcement and subsequent purchases would normally boost bond prices—in this case bond prices moved lower and pushed yields higher. The move relates to market expectation and that many major investors were expecting a much larger intervention from the US government. The US yield curve shifted higher last week and reflects both increased inflation concerns and increased probability that the US will raise rates on Wednesday.

Aligned with market expectations, the ECB raised its deposit rate by 25 basis points to 2.5%, while revising its inflation forecasts higher for both next year and 2028. ECB guidance maintained a strictly data-dependent, meeting-by-meeting approach without pre-committing to a specific interest rate path. Outside of the ECB decision, markets recalibrated central bank rate hike expectations, with persistent energy inflation concerns a dominant catalyst. Swap markets increased the likelihood of a 25-basis-point rate hike by the Bank of Canada for the remainder of 2026. In the US, the probability of a similar hike at this Wednesday’s US Federal Reserve meeting rose to 87% from 58%, catalyzed in part by the month-over-month August core inflation coming in at 0.3%, above expectations for 0.2%, and by the monthly headline producer price index (PPI) rising 0.4%—with the latter increase largely driven by a 4.2% rise in energy prices, according to Bloomberg.

Beyond central bank policy, the US$22 billion 30-year US treasury auction was completed at 5.308%—its highest yield since 2001—drawing strong indirect demand from pension funds, insurance companies, sovereign wealth funds, asset managers and foreign central banks. However, strong auction participation alone does not guarantee yields have peaked. While these elevated long-term yields present an opportunity for fixed-income investors, it is equally important to understand the risks and diverse drivers behind these moves—from geopolitical tensions and oil price volatility to broader inflation expectations and concerns regarding fiscal sustainability.