By Michael O’Neill

“Ever since they were young men, they played the market ball.

From London to New York, they must have played them all.

But I’ve ain’t seen nothing like them, in any banking halls.

Those deaf, dumb and blind kids,

Sure make dodgy market calls.” (apologies to The Who)

Pinball Wizards they aren’t, but they sure are deaf, dumb and blind.

“Can’t Tell Me Nothing”

The evidence is irrefutable. Fed Chair Jerome Powell may believe that investors and traders are Ye (formerly Kanye West) fans, because he “can’t tell them nothing.”

During Tuesday’s Congressional House Financial Services Committee testimony, Mr. Powell said that he could not justify lowering rates due to the risks that higher tariffs will increase inflation. He gave a nod to the possibility of cutting rates but avoided even hinting as to when.

His message was the same as his June 18 post-FOMC press conference—policymakers were in “no rush to lower rates while they wait to learn more.” Furthermore, he noted that inflation risks remained unchanged: it has eased but is still “somewhat above our 2 percent longer-run objective.”

Many other FOMC policymakers chimed in with their views on monetary policy on Tuesday. They included the President of the Cleveland Fed, Beth Hammack; NY Fed President John Williams; Minneapolis Fed boss Neel Kashkari; and Governor Michael Barr.” They were united in their insistence of a “wait-and-see” approach to monetary policy. Markets are singing along with Ye’s 2007 tune.

Bunker Busters

News that Israel launched a surprise attack on Iran tanked global equity and oil markets. At the same time, gold and traditional safe-haven currencies—the Japanese yen and Swiss franc—soared. Then the Americans got involved, unleashing a devastating airstrike on Iranian nuclear sites. Twenty-four hours later, Trump declared a ceasefire to what he called “The 12-Day War.”

That was all traders needed to hear. Within hours, the risk-off reaction to the Israel–Iran war was reversed. Markets are now acting as if Trump’s ceasefire declaration is enough to erase forty-six years of Iranian leaders branding Israel a “cancerous tumor that must be removed from the region.” Ayatollah Khamenei may be eighty-six and nearing the end of his shelf life, but it’s unlikely his three hand-picked successors hold a softer view on Israel.

Iran still rakes in money from oil sales and Trump has already given his blessing to additional Chinese crude purchases despite sanctions. If Iran cannot build its own nukes, perhaps they can find a willing seller in Russia, North Korea, or even Beijing. Bunker-busting bombs may have helped end this conflict but raised concerns about military spending.

Budget Busters

President Trump, fresh off his decisive victory in the Middle East, turned his negotiating talents towards Europe, specifically NATO. He is extremely annoyed that of the 32 members of the group, 47% spend less than their 2.0% of GDP commitment, and he dusted off Chapter 2 in his book, “The Art of the Deal.”

In the book, he defines leverage as “having something the other guy wants. Or better yet, needs. Or best of all, simply can’t do without.” And in the face of blatant aggression from Russia and European fears that Putin has ambitions to rebuild the Union of Soviet Socialist Republics (USSR), Trump’s leverage was on full display.

The Europeans who have mostly ignored NATO spending commitments got a rude awakening during Trump’s first presidency. That’s when he called out members for not living up to their obligations and raised questions about America’s commitment to Article 5—the mutual defence clause.

Russia’s invasion of Ukraine underscored Europe’s inability to defend itself and the recent Iran–Israel crisis brought those fears to the foreground and handed Trump another major victory.

On June 25, NATO members, fearing the loss of US military support, decided to agree to Trump’s demand. They announced all members would “commit to invest 5% of GDP annually on core defence requirements as well as defence- and security-related spending by 2035.”

It’s great news, and far overdue. The only problem for those 32 nations is that countries like Canada, Italy, the UK, and France are currently operating with huge budget deficits. Where will the money come from?

The Pinball Loonie Buster

For the Canadian dollar, all this noise adds up to confusion, not clarity. The Fed’s “wait and see” stance offers no relief, while Trump’s Middle East ceasefire barely put a dent in geopolitical risk. The US tariff war against Canada has handcuffed the Bank of Canada—the economy is slowing but rising inflation risks are higher.

Meanwhile, NATO’s shiny new 5% defence spending pledge makes for nice headlines, but it’s more mirage than reality. Countries only have to submit an annual plan showing how they intend to achieve the goal, and 5.0% spending is not enforceable.

Canada is already juggling deficit pressures and barely scraping 1.4% in defence outlays, so the path to 5% by 2035 looks about as credible as a balanced budget promise in an election year.

For now, USDCAD remains at the mercy of global sentiment, oil prices, and selective market hearing—just another pinball, deaf to risk, dumb to deficits, and blind to reality.