The Close for Monday, Feb. 17, 2026

Key Concepts

• Canadian inflation slowed, but the Bank of Canada is unlikely to adjust monetary policy immediately.
• A significant $470 billion investment in Canada’s defence industry aims to boost domestic production and exports.
• Canada and Mexico are strengthening trade ties through a new MOU, with ongoing negotiations and potential for preemptive bilateral deals.
• Market sentiment is shifting, with investors reducing leverage amid commodity volatility.
• Housing starts are declining, driven by economic uncertainty and high costs.
• Consumer confidence is slightly improving, particularly among younger Canadians, but remains fragile.
• Canada is prioritizing domestic procurement in its defence strategy, aiming for 70% Canadian content.

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Economic Data & Policy (January - February 2026)

Canada’s annual inflation rate slowed to 2.3% in January, a surprise to economists who predicted a steady rate of 2.4%. This decrease was largely driven by falling gas prices and shelter costs (below 2% for the first time in nearly five years). Despite this easing, analysts anticipate the Bank of Canada will maintain its current monetary policy in the near term. A major economic initiative is the $470 billion investment over the next decade in Canada’s defence industry, spearheaded by the new Defence Investment Agency, with a focus on “building in Canada” and prioritizing Canadian companies to strengthen economic resilience and independent capacity. Simultaneously, Canada and Mexico signed a Memorandum of Understanding (MOU) to expand trade, focusing on port-to-port trade and investment in the pharmaceutical and agricultural sectors, occurring alongside upcoming renegotiations of the trade agreement. Canada-Mexico trade has grown twelvefold since NAFTA, currently reaching approximately $56 billion.

Market Performance & Investment Strategy (Late 2025/Early 2026 - February 2026)

The TSX closed down 0.5% due to weakness in base metals and energy stocks, while US markets showed a mixed performance. Market sentiment is described as being in a “discovery mode,” moving away from the rotation out of tech and into commodities observed in late 2025/early 2026. Commodity volatility, particularly a 30% swing in silver prices over two weeks, is prompting investors to reduce leverage. Diana Avigdor (Barometer Capital Management) holds 10-15% of her portfolio in cash and is considering further exits, emphasizing the need for “price to match the narrative.” She exited positions in a large money centre bank and a technology stock after positive earnings failed to translate into price gains. Favoured holdings include Agnico Eagle (due to record production, strong free cash flow, cost discipline, geopolitical safety, dividends, and share buybacks) and Caterpillar (linked to the “power theme” – natural gas turbines for data centres – with a 44% profit increase in its power and energy segment). Precious metals exposure has been reduced due to recent rapid price increases and consolidation.

Trade & Political Developments (December 2024 - February 2026)

Canada has appointed Janice Charette as its new Chief Trade Negotiator to the US, separating the role from the Ambassador to the US, a move viewed positively by Martin Cobb (Laurence Steinberg Wealth Management) as allowing for focused negotiation and relationship building. The upcoming KUZMA review (scheduled for July) is expected to be challenging, complicated by US political uncertainty and the potential for tariffs. The unpredictable behaviour of former President Trump, exemplified by the delayed Gordie Howe Bridge project, remains a concern. Canada is also engaged in bilateral negotiations with Mexico, potentially preempting a trilateral agreement with the US, driven by a concern that Mexico may secure a favourable deal with the US first.

Corporate Performance (December 2024 - February 2026)

Sherritt International has reduced operations at its Cuba joint venture due to fuel supply constraints, with existing refinery inventory (Alberta & Saskatchewan) expected to last until mid-April. Wheaton Precious Metals acquired an additional silver stream on BHP’s mine in Peru for $4.3 billion USD – the largest streaming deal in history, granting Wheaton 67.5% of all silver produced. BHP Group reported earnings at the upper end of analyst expectations, driven by increased copper production, a rally in historic metals prices, and a 4% increase in iron ore business earnings.

Housing & Consumer Confidence (January - February 2026)

Canada’s housing starts decreased by 15% in January, with no anticipated near-term recovery, attributed to trade and geopolitical uncertainty, high construction costs, weakening demand, and increasing inventories. The Bloomberg Nanos Canadian Confidence Index showed a slight increase to 53 (out of 100), the highest level since late 2024, primarily driven by an 8-point jump in confidence among younger Canadians (under 30). This increase is potentially linked to the Liberal government’s GST relief and proactive messaging regarding trade diversification. However, Nik Nanos cautions that this optimism is fragile and vulnerable to negative economic developments, such as job losses.

Defence Industrial Strategy (February 2026)

The government’s Defence Industrial Strategy aims to prioritize domestic procurement, targeting 70% of future defence spending towards Canadian companies, and increase Canadian defence exports by 50%. Specific “sovereign industrial capabilities” have been identified as essential for national security. Implementation challenges include defining a “Canadian company” and balancing military requirements with economic benefits, acknowledging increasing global trends towards domestic defence industry prioritization. Significant results are not expected in the short term, with the full impact anticipated over a ten-year timeframe.

Conclusion

The Canadian economic landscape is currently characterized by moderating inflation, strategic government investment in defence, and proactive efforts to strengthen trade relationships, particularly with Mexico. While market sentiment is shifting and housing starts are declining, a slight uptick in consumer confidence, driven by younger demographics, offers a glimmer of optimism. The success of these initiatives will depend on navigating complex trade negotiations, addressing supply chain challenges, and effectively implementing the ambitious Defence Industrial Strategy.