Host:
Prime Minister Mark Carney said yesterday that his government is determined to get spending down. Let’s get more on this with our next guest, Rob Tetrault, Branch Manager, Senior Investment Advisor, and Senior Portfolio Manager at Canaccord Genuity. Rob, thanks very much for joining us.
Rob Tetrault:
Thanks so much for having me.
Host:
What are you expecting with this report?
Rob Tetrault:
The top-line number, if this were like an earnings release, would likely come in around $45 to $50 billion for the 2025–2026 fiscal year. The latest number after 11 months was about $25 billion. Historically, March is a heavy spending month for the government. If we assume another $20 to $25 billion, we land in that $45 to $50 billion range.
That’s probably the deficit for the year, which is ahead of expectations. So the question becomes whether we actually beat expectations, or whether we benefited from higher oil prices and increased tax revenues. That’s the range I’m seeing. I think $45 to $50 billion is where we land.
Host:
And how do you see the market reacting, meaning Canadians in general?
Rob Tetrault:
Honestly, not much. I don’t think people care that much about the number itself. I think it’s already priced in. Most portfolio managers and analysts already expect something in that range. There’s been enough signaling from the Prime Minister’s office.
So I expect muted market movement. If the number comes in significantly different, or there’s a major headline tied to the spring update, then maybe we see a move. Otherwise, I think it’ll be fairly quiet.
Host:
Are you expecting any new announcements that might drive growth?
Rob Tetrault:
They talked about the sovereign fund yesterday. I know you covered it at length. Does the market see that as progress? We’d be leveraging our balance sheet to own equities, potentially moving toward a model like Norway.
I think the market would likely see that as positive. More detail on that could be constructive, but I’m not expecting anything major. Maybe I’ll be surprised.
Host:
With the Bank of Canada announcement coming up tomorrow, it looks like we’re expecting a hold. Will today’s report have any impact on that, or further down the road?
Rob Tetrault:
I think tomorrow will be status quo. You nailed it. We’re not expecting a move.
But I do think we’re approaching a potential shift in the Bank of Canada’s rate path. Three months ago, we were expecting stability this year, maybe even some discussion of cuts in 2026. That conversation is now gone.
This oil shock and the Middle East situation are front of mind for economists and analysts. Expectations are shifting. We’re now thinking hikes instead of cuts.
If oil prices stay elevated, that feeds directly into inflation. Oil leads to inflation, and inflation leads to rate hikes, not cuts.
Host:
With everything unfolding, we’ve seen oil moving higher. What does “under control” look like to you?
Rob Tetrault:
I think it comes down to resolving the Middle East crisis. There’s clearly been a supply shock, and that will need to work through the system.
If the geopolitical situation stabilizes, the supply side will eventually rebalance. That could take three, six, maybe nine months. It won’t happen overnight.
If the crisis is resolved, central banks will have more flexibility to pause rate hikes and let inflation work through. If not, I think we’ll see hikes this year. At least one, possibly two, and potentially more depending on how things evolve.
Host:
For investors, reacting to the Iran crisis has been risky, hasn’t it?
Rob Tetrault:
Absolutely. I see it firsthand. I manage money for retail clients, retirees, business owners, as well as institutions. I don’t need to look at volatility indexes to know what’s happening. I feel it when clients call.
We always get the same reaction during geopolitical events: “Do I need to sell? Is this time different?” And the answer is almost always no, it’s not different.
We had more calls this time than expected given the size of the market move. It was about a 10 percent decline, yet we still saw a couple of capitulations, which is surprising.
Those investors sold and missed the recovery that followed shortly after. That’s something we see in every market cycle. This time felt louder because of how much coverage and attention the situation received.
Host:
Everything is instantaneous now. You mentioned that since 1945 there have been around 30 major geopolitical crises, and markets were higher 12 months later in most cases. Do you know which ones didn’t follow that pattern?
Rob Tetrault:
That’s a good question. I’d have to go back and check my research.
But generally, when you look 12 months out, geopolitical events tend to resolve more quickly than economic crises. This isn’t like 2008, where there were structural issues with the economy, the banking system, inflation, and unemployment.
Geopolitical shocks tend to work themselves out faster. That’s why we often see markets recover relatively quickly. I wouldn’t say we’re completely out of the woods yet, but historically, these situations stabilize faster than economic downturns.
Host:
Rob, we have to leave it there. Thanks very much for joining us.
Rob Tetrault:
I appreciate it. Thanks for having me.
