September 2025
The U.S. President’s push to redesign the global economic order in favor of the U.S. is shaking a foundation of post-World War II supremacy: the dollar’s role as the world’s reserve currency. That dominance helps the U.S. to run gaping budget deficits and enables U.S. consumers to spend more than they make—all funded by overseas investors eager to snap up assets denominated in greenbacks. Trust in the dollar is eroding with the US dollar index seeing it’s worst performance since 1973 in the first six months of 2025 and tumbling more than 9.5% in the first nine months of the year.1 In September we maintained our twelve-month forward outlook of three months of Stagnation (U.S. Real GDP growth less than 2.5%) followed by nine months of Recession (negative GDP growth) over the next twelve- month period.
China’s surveyed unemployment rate edged higher to 5.3% in August 2025, compared to the prior month’s 5.2%.2 China’s trade surplus came in at USD 102.33 billion in August, higher than the USD 91.29 billion recorded in the same month a year earlier. China’s trade surplus with the U.S. declined to USD 20.32 billion in August, down from USD 23.74 billion in July, as both exports and imports with the U.S. declined.3 Euro area consumer price inflation stood at 2.0% in August,4 while the seasonally adjusted unemployment rate fell to 6.2% in July, down from 6.3% in June. Among the largest Eurozone economies, Germany (3.7%) and the Netherlands (3.8%) recorded the lowest jobless rates, followed by Italy (6.0%), France (7.6%), and Spain (10.4%).5
The U.S. economy expanded a revised annualized 3.8% in Q2 2025.6 The U.S. annual inflation rate accelerated to 2.9% in August,7 while the U.S. unemployment rate rose to 4.3%.8 The U.S. trade gap widened sharply to $78.3 billion in July 2025, compared to a revised $59.1 billion gap in June. Exports rose 0.3% while imports rose 5.9%, led by purchases of nonmonetary gold. The largest trade deficits were recorded with Mexico, Vietnam, China, and Taiwan. The U.S. also ran deficits with the E.U., India, and Canada.9 On an annualized basis, the Canadian GDP contracted by 1.6%, well below expectations of a 0.6% contraction.10 The annual inflation rate in Canada rose to 1.9% in August,11 while the unemployment rate rose 0.2 percentage points to 7.1% in August, the highest level in four years, due to tariffs and uncertain economic policy from the U.S.12 Canada posted a trade deficit of C$4.9 billion in July. Exports to the U.S. increased in July, in part because of higher exports of crude oil while imports from the U.S. fell 2.2%, marking the fourth decrease in five months.13
U.S. equities finished their fourth consecutive month of gains in August, with the S&P 500 up 2.03%. While tariff -related uncertainty and geopolitical tensions continued to weigh on the market, optimism surrounding potential upcoming Federal Reserve rate cuts and Big Tech strength helped propel the 500 to a new all-time closing high on August 28. The S&P Mid Cap 400 and S&P Small Cap 600 gained 3.4% and 7.1%, respectively. Gold reached another all -time high, fueled by renewed safe haven demand. Major Canadian equity indices finished the month on the upside as the S&P/TSX Composite increased 5.0%. August was another good month for the S&P Europe 350, with a positive return of 1.1%. Global equities continued to rise. The S&P Global BMI increased by 2.9% in August, bringing its YTD gain to 14.7%.
In September we maintained all exposures held in August. The reduction in exposure to the S&P 500 and increase in exposure to the Canadian TSX equally across all models in August paid off in September. We maintain our view that Canada is managing the U.S. tariff uncertainty relatively well, replacing some U.S. exports with contracts in Europe and abroad. Gold is held across all models as a long-term strategic asset, playing a role as an effective hedge against the heightened geopolitical uncertainty and market volatility.
The U.S. is moving towards paying more for new borrowing and more to keep rolling over its existing debt. Annual payments on U.S. government debt by some measures are now larger than what the country spends on national defence. Though a weaker foreign exchange rate may be good for rebalancing the trade deficit—by making American exports cheaper and more competitive and deterring spending on costlier import, it is not good for household wealth. Banks will need to pay more to raise money and charge more for mortgages as a result. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.
Deborah Frame, President and CIO
Drew Millard, Portfolio Manager
1 U.S. Dollar Index (DX-Y.NYB)
2 Trading Economics. China Unemployment. September 15, 2025.
3 Trading Economics. China Trade. September 8, 2025.
4 Trading Economics. EU Inflation. September 17, 2025.
5 Trading Economics. EU Unemployment. September 1, 2025.
6 Trading Economics. U.S. GDP. September 25, 2025.
7 Trading Economics. U.S. Inflation. September 11, 2025.
8 Trading Economics. U.S. Unemployment. September 5, 2025.
9 Trading Economics. U.S. Trade. September 4, 2025.
10 Trading Economics. Canada GDP. August 29, 2025.
11 Trading Economics. Canada Inflation. September 16, 2025.
12 Trading Economics. Canada Unemployment. September 5, 2025.
13 Trading Economics. Canada Trade. September 4, 2025.
Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. August 31, 2025. Index performance is based on total returns and expressed in the local currency of the index.
