When Prime Minister Mark Carney stood before the European Parliament and embraced an invitation for Canada to become the European Union's first associate member, Sadiq Adatia, Chief Investment Officer at BMO Global Asset Management, happened to be live on BNN. In his weekly commentary, How markets reacted to Carney's historic speech1, Adatia connects that moment to a broader market picture: a hawkish Federal Reserve, a 10-year Treasury yield sitting at 5%, and a Canadian outlook that is quietly improving.
What Did Carney Get Right?
Adatia's verdict is unambiguous. "I believe Carney hit the nail on the head when it came to many of the speech's key themes," he says. What resonates most is how directly the speech answers the objections he hears abroad. "As I listened to the remarks, what continually struck me was how Carney was, one by one, addressing and countering many of the concerns about investing in Canada that I've heard at various conferences and summits, while also highlighting Canada's strengths."
The framing mirrors his own field notes. "When I travel the world and meet with politicians, companies, and key investors, I often hear that Canada is viewed as a trustworthy nation, a reliable trade partner, and a source of products and commodities that other countries are eager to access." Carney's emphasis on shorter infrastructure timelines, accelerated tax incentives and new export ports, Adatia adds, are "major positives, especially in light of the supply chain and political risks currently prevalent."
Friend or Foe to Washington?
To be fair, the deal cuts both ways. "Canada's burgeoning relationship with the EU could be viewed positively or negatively by the United States," Adatia says. President Donald Trump has already dismissed the EU's offer as "laughable." Yet Carney argued that a stronger Canada makes a better partner for the U.S., remarks Adatia reads as crafted to pre-empt American criticism.
His net assessment: "Overall, we view this as a good story across the board."
Where Does Positioning Land?
Good headlines do not rescue Europe. The team remains underweight, as Adatia explains that "even a good news story is not sufficient to overcome the economic headwinds that have afflicted the continent, including weak productivity, high oil prices, and competition from China."
Canada is a different story. "For Canada, our concerns were future growth and an uncertain trade landscape. This potential deal would go some way toward addressing both issues." The team moved from slightly bearish to neutral on Canada last month, and the door is open wider still: "if a resolution to Canada-U.S. trade dispute comes to fruition, then our view could become quite optimistic."
Is One Hike Enough?
The Fed voted unanimously to raise rates by 25 basis points, a move Chair Kevin Warsh telegraphed at Jackson Hole. "It is now clear that Warsh is invested in keeping inflation in check and views price stability as an important part of the Fed's mandate," Adatia says. With Warsh again describing the economy and consumer as fairly strong, the team sees a strong chance of another hike in late October. The logic is simple: "it is unlikely that the Fed would raise rates for the first time in three years and expect that only one increase would get the job done."
Markets absorbed the first hike calmly because it was priced in. A second is not, and Adatia says "we do expect to see some softness in equity markets continue in September."
When Do Bonds Become the Better Bet?
The 10-year yield crossed 5% ahead of the decision and held there into Friday. The next move is less certain, but once expected hikes are priced in (Adatia rules out a return to five or six hikes), bonds could turn compelling. "A 5-6% return on a U.S. Treasury bill is nothing to sneeze at, and that kind of environment is entirely plausible in the relatively near future." That could prompt some investors to rethink equity exposure, "reasoning that they could be achieving relatively attractive returns with less risk on the fixed income side."
For now, the team stays slightly underweight bonds "because another rate hike is still hypothetical," though "yields around 5.50% could be enough for us to reconsider our positioning."
Five Key Takeaways for Advisors and Investors
- Canada's investment case is being made on the world stage. Carney's speech directly addresses concerns global investors raise about Canada.
- Canada is neutral, with upside optionality. A resolution to the Canada-U.S. trade dispute could shift the team's view to quite optimistic.
- Europe stays underweight. Weak productivity, high oil prices and Chinese competition outweigh the good news.
- Expect a second Fed hike and near-term equity softness. An October increase is not yet fully priced in.
- Watch 5.50%. That yield level on U.S. Treasuries could trigger a rethink of the bond underweight and of equity allocations more broadly.
Footnote:
1 Adatia, Sadiq. "How Markets Reacted to Carney's Historic Speech." BMO Global Asset Management, 21 Sept. 2026, https://bmogam.com/ca-en/insights/how-markets-reacted-to-carneys-historic-speech/. Accessed 24 Sept. 2026.
