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00:00I will say I'm a little bit more optimistic now than I was, you know, back in April during
00:05Liberation Day, given just that we have at least more certainty, a little bit more clarity on the
00:10tariff front in terms of what the levels are. We're not talking about 50% anymore, anything
00:14like that. Whether or not they're legal is another story, but that sets up for at least
00:20a firmer, I think, a start to the year. We know what to expect, but that's not to say that there
00:24are lots of landmines in store for us in 2026, and just a lot of them coming in January in
00:30particular.
00:31It's interesting. I'd love your take, Jennifer, on what data to look at. Look, in between Christmas
00:37and New Year, it's pretty thin, but we have had a little dose of it. U.S. December Dallas
00:42Fed Manufacturing Index fell to negative 10.9 today. The expectation had been for negative
00:47six, and that's more about the manufacturing focus over there in Texas. But we're also
00:53seeing some of the pending home sales coming in much stronger than had been anticipated on a
00:57month-on-month basis. We're up 3.3% if you looked at that number that broke at 10 a.m.
01:02What is the tell for you going into 2026? What are the key data points that you want to look at?
01:08So I'll be looking at, I think everybody else will be looking at, anything that's related to
01:13jobs, anything that's related to inflation. Funny you mentioning the data, because we finally,
01:19finally got the Q3 GDP numbers out of the U.S. just was last week, right? Yeah, 4.3%,
01:25which was like, whoa, blew me away. And it wasn't just, you know, exports. It wasn't just
01:30inventories or anything like that. It was pretty broad-based. Very interesting take, for example,
01:36from the consumer side. A lot more spending on that side, not just on, it was just pretty
01:41broad-based as well, but a lot on non-durables and also on services. So, you know, we can't discount
01:46the consumer just yet. But at the same time, all that's a big look in the rearview mirror.
01:52That was all Q3. And now we're looking at Q4. And of course, now as we're starting Q1
01:56in just a few days. But we have to get through this period of still not clean data. It still
02:03has to be scrubbed, I think. We're going to be looking for a lot more revisions. It'll be
02:07interesting the first take, of course, and all the regional data and all that will make
02:10for a very interesting story. But I'm going to be more interested in the government data and what
02:15is going to happen after they revise them in the months ahead to see what the real story
02:20is going to be. But so far, you know, as of the first three quarters of the year, a very
02:24strong, a very resilient U.S. economy still. And it's going to get messy because of the
02:28shutdown that we had in Q4. We're going to have that bounce back in Q1. But at the same
02:32time, we can't break out the, you know, the bubbly just yet because we could be talking
02:36about shutdown again in the next couple of weeks. Sorry to say that. Sorry to put a damper
02:41in all this. But yeah, that's the reality. That's out there. So talk to us about the
02:46consumer out there, Jennifer. How do you see the consumer? I know we've got that case-shaped
02:49economy out there. So maybe we've got to, you know, hem and haul it a little bit. But
02:53it seems like the consumer is doing OK. Is that what you're seeing?
02:57So far, again, you know, we got the latest data that we got was from the retail sales report.
03:02The core measure was very strong, sets up for a, again, a strong, still a strong quarter
03:08for this consumer. But still, you know, we have to be careful because of the shutdown
03:11and all that. At the same time, I'm very wary of the confidence surveys that we've been
03:15seeing. I mean, and they can swing back and forth. But just particularly what we saw from
03:20the conference board survey that had dropped considerably. But, you know, it wasn't about
03:28inflation because the inflation expectations component, I believe, was quite steady. It was
03:32all about jobs. And fewer people were saying that they found jobs plentiful. More people
03:38were saying that they are finding jobs hard to get. So that's something that we have to
03:42be very wary about. Because obviously, at the end of the day, it's having a job, having
03:47a steady income that's going to be what is the main driver for the consumer.
03:51And the main driver for the Fed. We're going to talk a lot more about the consumer after
03:54the next break. But talk to us, Jennifer, a little bit about one of the key issues you
03:59think we should be tiptoeing around is who is going to lead the Fed next and how they react
04:04to the data that they're given to. So it's going to be early January that we're going
04:08to be anticipating which Kevin it'll be.
04:10Right. Which Kevin? Yeah, exactly. We do know for sure that is going to be his first
04:15name will be Kevin. The last name is to be decided. But, you know, it's going to be he'll
04:20be having he will have a very difficult job finding his way through the data. You know,
04:26obviously, the analysis will be very important, but also getting some sort of a majority within
04:31all the Fed voters, because as we saw from the last Fed vote, there are quite a few that
04:36are not so confident that they are ready to cut rates again or just yet. You know, we
04:41are not looking for a January rate cut by any measure. I don't think anyone is right now.
04:46But, you know, I think a couple more at the minimum rate cuts to come at a slower pace.
04:52You know, we're looking at March, September, March, June and September for the next rate cuts.
04:57Three more to come. Everything obviously will be taken on a meeting by meeting basis.
05:01And we'll be very data dependent. But having that majority will be very critical.
05:06Jennifer, just when it seems like the market may have put tariffs in the rearview mirror,
05:10USMCA talks officially launched mid-January. I mean, what's going to happen there? I mean,
05:17you've got a unique perspective up there in Canada. What's the expectation?
05:20Oh, I think expectations. I'm going to say I'm from my perspective, I think they're kind of low right
05:26now. I'm not sure exactly what's going to happen, whether or not we're going to actually have an
05:30actual USMCA per se, or is it going to be a USC, CM, a USM, you know what I mean? Some
05:35sort of combination of that. But obviously, there is going to be a lot of give and take
05:40from all parties. It's just going to be how much, you know, how much each party will be
05:45giving or taking will be critical. But it will definitely be a lot different, I think,
05:50than what we have right now. Let's talk more global perspective now, because you've got some
05:55great takes on global central banks, not just what's happening in the Fed. The Bank of Canada,
06:00what, 2024 was a big year for rate cuts. In fact, 100 bits were done in 2025. Are we now done until
06:07those trade talks are a washout? So it sounds like the mainframe, Governor Macklin, basically sounds
06:13like that they are done, that they're quite comfortable. The words were like that, that they think that rates
06:18are about right where they are right now to get inflation back down to target. So, you know,
06:24at the bare minimum, sounds like nothing is going to happen. But I think if there is a risk, the risk
06:29will be more cuts, again, given how the USMCA fares. I mean, the US is our biggest, by far, trading
06:36partner out there, with about three quarters of our exports going to the US, over 50% of our imports
06:42coming from the US. So many businesses are very dependent on what happened.
06:47Sorry. So at that point, because of that, we do believe that how the talks fare will depend, will
06:56determine what happens with the Bank of Canada, and of course, with inflation in the economy.
07:00How about, what's your dollar call here for 2026? The dollar has not bounced back, like stocks have
07:06bounced back, and other parts of the market have bounced back.
07:10That has been one of the toughest calls, I'll tell you, to make, are the calls on the US dollar.
07:14It's been, like the US economy, quite resilient. But you would imagine, in theory, in a world where
07:20almost all the central banks are basically finished easing policy, maybe one more to go,
07:27maybe a couple more to go. But in some of them, are we getting ready to start to tighten or continue
07:32tightening, in the case of the Bank of Japan, in that kind of environment. And then, of course,
07:36with the Fed still on an easing bias, you would imagine that the US dollar would start to weaken.
07:40But it's sort of like how it's going to be all relative to everybody else, in terms of the
07:45economy. If the US economy continues to remain resilient, which we still expect, and we've got
07:50about 2% growth penciled in for 2026, that will actually help support the US dollar. So even though
07:57we do look for the US dollar to weaken, it's going to be a slow, softish weakening trend, not a big drop.
08:04Let's talk about what it is just more broadly, what the airline sector tells us about the consumer.
08:09Jennifer Lee is back with us, senior economist at BMO Capital Markets. And we talked a little bit
08:13about consumer sentiment in the moment and what the data is that you've been drawing from. But what
08:17does the desire to travel tell you about the consumer and its resilience right now, Jennifer?
08:24Well, you know, it's interesting that, you know, we're talking about the consumer resilience,
08:27because again, we could never, like I said, we could never, ever underestimate the US consumer.
08:32And by the way, with those three, those third quarter Q3 GDP numbers we're talking about earlier,
08:37you know, a lot of the spending was on services as well. So that will also add into the airline
08:43spending as well for the travel. But at the end of the day, it's all about the dollars,
08:48you know, and how much the tickets are, for example. But of course, you know, what's incoming
08:52and, you know, consumers are going to be, obviously, again, it's all about jobs. It's all about wages.
08:58Wages have been, you know, pretty steady, about 0.5%-ish per month increases, roughly 0.4, 0.5,
09:05which is decent enough. And having that steady income is huge. And, of course, you know,
09:11what you're paying out in terms of prices at, you know, at the pumps, at the grocery store,
09:16you know, having inflation coming down since, you know, those peaks a couple years ago,
09:20it has been very helpful. But they've sort of been sticky at this point. And this is what the
09:26Fed's challenge is going to be over the next year is dealing with that, you know, balancing between
09:30the weaker jobs market or less resilient jobs market and still sticky-ish CPI, depending on
09:35who you're talking to, of course, about whether or not CPI is still sticky. But things like beef and
09:39bananas, I believe, are still surging. So, you know, it's not every single item in the grocery
09:44store that's coming down.
09:45All right, Jennifer, let's stay with that theme of travel here. It's, we're getting to the depths
09:49of winter right now. It's cold out there. And I'm guessing it's pretty cold up in Canada.
09:53Are you telling me...
09:54Yeah, you should see the snow.
09:55Our good friends in Canada are not going to the warm beaches of Florida or the warm
10:00desert of Arizona. Are you guys still upset that you're not traveling?
10:05You know, there's still travel, but it's more domestic, although full disclosure, yours truly
10:10was in Miami a couple of weeks ago, which is amazing, the great weather. But there's been
10:15a lot more, you know, over the past year, it's been a lot more, you know, domestic travel,
10:20domestic purchases, which has helped the Canadian economy stay, you know, keep its nose out of the
10:25recession business, which has, again, been very helpful. But it's all been about different
10:31experiences, again, across this country as well, even though it's maybe not as warm as
10:37what we're seeing in Miami. But at the same time, different experiences, and that's always
10:41a good thing, too.
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