Global Markets Mixed as Oil Surges and US-Canada Trade War Escalates

US-Canada Trade War Escalates

The trade conflict between the United States and Canada has intensified after Canada imposed tariffs ranging from 15% to 50% on hundreds of American products. Ordered by Prime Minister Mark Carney, the retaliatory measures aim to pressure Washington back to the negotiating table. The move is expected to hit US exporters in key swing states like Michigan and Ohio ahead of the midterm elections, while also weighing on the domestic Canadian economy.

Despite mutual threats and escalating rhetoric from the administration of US President Donald Trump, both nations have signaled an ultimate desire to reach a comprehensive and "sustainable" trade agreement. Commenting on the real economic impact, experts estimate that the combined friction will drag down economic output.

According to a report by economists Tony Stillio and Michael Davenport of Oxford Economics:

"The combined impact of the US tariffs, the Canadian retaliation, and federal support programs will reduce output by about 0.3%, compared to the baseline forecast."

Global Markets Mixed Amid Geopolitical and Rate Fears

Global markets are trading with mixed trends this morning, driven by growing concerns over security escalations in the Middle East and their impact on energy prices, alongside high anticipation ahead of upcoming interest rate decisions in Europe and the US. While equity markets attempt to project cautious optimism, a surge in oil prices to a two-month high and rising bond yields indicate that persistent inflation fears continue to dictate the tone.

In Asia, trading is mixed following uneven macroeconomic data from China and a strengthening Japanese currency. Seoul's Kospi index rose by 2.1%, while the Shanghai Composite edged up 0.4%, and Japan's Nikkei 225 remained virtually flat with a minor 0.1% gain. Conversely, Hong Kong's Hang Seng index shed 0.4%.

Chinese trade data released on Tuesday signaled weak domestic demand. While Chinese exports grew by 25% in August, matching forecasts, imports rose by only 28.2%, missing analyst expectations of a 30% increase. Meanwhile, the Japanese yen strengthened by 0.87% to 153 yen per dollar, its highest level since February, following hawkish remarks from the Bank of Japan last week.

Wall Street Prepares for Shortened Week

Wall Street is set to open a shortened trading week today following the Labor Day holiday. US stock futures point to a mixed open, with Dow Jones futures down 0.6%, S&P 500 futures trading flat near baseline levels, and Nasdaq futures climbing 0.5%.

Last week, New York indexes closed with minor changes: the S&P 500 rose by 0.1%, the Nasdaq gained 0.4%, and the Dow Jones slipped by 0.3%. Market sentiment was heavily influenced by shifting expectations regarding the Federal Reserve's interest rate decision on September 16.

Following reassuring remarks from Fed Governor Christopher Waller, an exceptionally strong August jobs report—showing an unexpected addition of 162,000 jobs versus the projected 53,000, and unemployment at 4.1%—pushed market pricing for a rate hike to around 60%. With a robust labor market and inflation exceeding the 2% target for over five years, attention now turns to Friday's Consumer Price Index (CPI) release, expected at an annual rate of 3.4%, which will be crucial for the Federal Reserve's decision next Wednesday.

Oil Prices Surge on Middle East Supply Risks

The global oil market is experiencing renewed volatility, with prices rising for the third consecutive day. Brent crude crossed the $97 per barrel threshold, while West Texas Intermediate (WTI) climbed above $92 per barrel, reaching two-month highs. The bullish trend is fueled by potential supply disruptions after Houthi attacks on a Saudi Aramco refinery disrupted production in Saudi Arabia, alongside Iranian threats to close the Strait of Hormuz, through which approximately 20% of the world's oil supply passes.

Concurrently, OPEC+ has maintained its tight production levels. Commenting on the escalating security tensions, Deutsche Bank analyst Jim Reid noted in his MarketWatch review:

"The main focus in the confrontation with Iran over the weekend was a 'tit-for-tat' escalation targeting commercial shipping in and around the Gulf. We are still far from a resolution."

Tel Aviv Braces for Negative Arbitrage Pressure

Following the US holiday, dual-listed shares return to the Tel Aviv Stock Exchange (TASE) with a negative weighted arbitrage gap, expected to drag the flagship TA-35 index down by a theoretical 0.46% at the open. Downward pressure is led by semiconductor and tech stocks, including Nova (-3%), Tower Semiconductor (-2.1%), and Camtek (-1.4%), alongside Elbit Systems (-2.5%), Ormat Technologies (-2.7%), and Palo Alto Networks (-1.7%). Nice (+1.7%) and Teva (+0.1%) will provide minor support.

Outside the main index, extreme arbitrage gaps are recorded: XTL Biopharmaceuticals jumps with an exceptional positive gap of nearly 300%, while Enlivex and Scion return with double-digit positive gaps. Conversely, SaverOne and Purple Biotech plunge with negative gaps of 97% and 73% respectively.

Yesterday, the local exchange opened the shortened trading week on low volume and mixed trends. The TA-35 rose by 1%, while the TA-90 fell by 0.7%. The technology sector stood out with a 2% gain, supported by Tower, Nova, and Next Vision. Real estate shares showed weakness, with the Construction & Real Estate 35 index dropping by 1%, led by Electra Real Estate.

The defense sector index rose by 2.6%, driven by Axon Vision, which received a 6 million NIS order from a local defense entity. Aerodrome and Third Eye also surged, with Third Eye signing a memorandum of understanding with a major European armored vehicle manufacturer to integrate its drone detection systems.

Goldman Sachs Bullish on Asian Equities

Goldman Sachs has raised its target for the MSCI Asia-Pacific index (excluding Japan) to 1,120 points, representing a 26% upside, driven by surging earnings expectations and a 102% jump in second-quarter profits. This trend is led by Singapore, Taiwan, and South Korea, where the bank raised its Kospi target to 12,000 points (a 79% upside) due to the AI-driven semiconductor boom.

Goldman analysts emphasized their preference for North Asian exposure and AI-related hardware, maintaining an overweight rating on industrial equipment, healthcare, and banks (excluding China and Australia). Despite geopolitical tensions, bond yields, and the upcoming US elections, the bank remains constructive on Asian equities due to strong tech-driven earnings growth and attractive valuations.