Opening
Our Q2 review closed by describing the oil war premium as having collapsed. A mid-June memorandum between the United States and Iran had drained the fear out of the market, and by July 1 Brent futures were trading at $71.57 a barrel. We wrote that the quarter's oil shock had been "a near-doubling and a full retracement," and that an easing bias at the Bank of Canada should re-emerge as energy base effects rolled off.
That reading did not survive the first three weeks of July. The memorandum unravelled on July 7–8, when the US Treasury revoked a waiver on Iranian oil exports and commercial vessels were attacked in the Strait of Hormuz. On July 12 the IRGC Navy declared the strait closed, and the US naval blockade of Iranian ports was reinstated around July 14–15. By July 17 Brent had settled at $88.10, and by the last week of September it was trading near $108 (Wikipedia oil chronology; Al Jazeera; NPR). The war premium we described as reversed had returned, and it ended the quarter higher than at any point in our Q2 review's closing weeks.
It matters to say so plainly, because the rest of Q3 follows from it. The oil shock became a rates shock: the US Federal Reserve hiked on September 16, and the Bank of Canada, while holding, moved its language toward vigilance. Both then met a trade shock, in which Canada lost the CUSMA carve-out for a defined list of goods. Each would be significant alone. In Q3 they arrived together.
The Macro Picture
Oil. The quarter's path, in ICE Brent futures, ran from $71.57 on July 1 to $88.10 on July 17. It eased to $83.55 on August 7 on reopening hopes, then climbed: $93.73 on August 20, $101.21 on September 9, $104.82 on September 17. On September 11 drones shut Saudi Arabia's East-West pipeline, the main Hormuz bypass, and on September 26 the US president rejected an Iranian offer at the UN General Assembly to reopen the strait. November futures were quoted at $107.35 on September 28 (Wikipedia oil chronology; Al Jazeera). These are attributed futures quotes; spot benchmarks have at times run well above them, and the two should not be mixed.
Inflation. Headline CPI eased to 2.8% year-over-year in June (released July 20) from 3.2% in May, then returned to 3.0% in both July and August. Gasoline did most of that work: it was up 20.5% year-over-year in June, 25.7% in July and 22.8% in August. Excluding gasoline, inflation ran at 2.2% to 2.4%. The Bank of Canada's preferred core measures stayed below 2%: CPI-trim was 1.9% in August and CPI-median 2.0% (Statistics Canada data via Bank of Canada Valet and Desjardins; InvestingLive). That is the distinction the Bank itself is drawing: the concern is not that core inflation is high today, but that a long enough energy shock may push it higher.
The Bank of Canada. The Bank held its policy rate at 2.25% on July 15 and again on September 2, its sixth and seventh consecutive holds. The July Monetary Policy Report cut its 2026 growth forecast to 0.7%. It expected CPI to ease to about 2.5% in the second half of 2026 and to reach 2% in early 2027, on an oil assumption taken from the futures curve as of July 9 (Bank of Canada). The language then shifted. The July deliberations noted that "the longer oil prices remain elevated, the bigger the risk that their inflationary effects broaden." The September 2 statement said: "Upside risks to the Bank's inflation forecast have increased," citing "limited progress in reopening the Strait of Hormuz." The September deliberations, published September 16, went further: energy spillover "could require a monetary policy response to prevent broad-based inflation from setting in" (Bank of Canada). The Bank has not raised rates. What changed in Q3 was how it described the risks.
The Federal Reserve. The Fed held at 3.50–3.75% on July 29 with three dissents in favour of a hike, then on September 16 raised its range 25 basis points to 3.75–4.00%, 12–0, its first hike in more than three years (federalreserve.gov). By September 17, markets were pricing the Bank of Canada's October 28 decision as a "coin flip," narrowly favouring a hike. Forecasters were divided: RBC and Desjardins expected holds through 2026, with a hike in the first quarter of 2027 (BNN Bloomberg/CP).
Rates. Government of Canada bond yields repriced through the quarter. The two-year yield went from 2.86% on July 14 to 3.11% on September 2, 3.35% on September 11 and a period high of 3.40% on September 23. The ten-year moved from 3.57% to a period high of 3.99% on September 29 (Bank of Canada Valet). Fixed mortgage rates followed. Lenders raised fixed rates by 5–20 basis points around August 17, when the five-year Government of Canada yield reached 3.313% (Canadian Mortgage Trends), and further increases at the large banks were reported in September.
Growth and labour. The "technical recession" story of Q2 is now gone. Second-quarter GDP, released August 28, grew 3.3% annualized, and the first quarter was revised to +0.3% from −0.1%. The quarter then lost momentum: July GDP was flat at 0.0%, and the August flash estimate was +0.2% (Statistics Canada data as reported by The Canadian Press, Desjardins and InvestingLive). The labour market showed the same turn. July added 75,000 jobs and the unemployment rate fell to 6.4%, its lowest since July 2024. August lost 42,000 jobs, with unemployment unchanged at 6.4% and wage growth down to 2.0% year-over-year (Statistics Canada, Labour Force Survey). Governor Macklem said on September 21 that if the new US tariffs persist, fourth-quarter growth could be roughly halved to below 1% (The Hub; CTV). Business confidence weakened. The CFIB's long-term index fell to 47.9 in September from 57.6 in August, and its short-term index to 43.3 (CFIB).
Trade. Two US tariff regimes now apply to Canada, and they treat CUSMA in opposite ways. The Section 122 surcharge expired on July 24 and a Section 301 forced-labour duty replaced it: 10% for Canada, with CUSMA-qualifying goods exempt. But on July 20 the US had used Section 338 to levy a tariff for the first time: an additional 50% on listed Canadian goods, with no CUSMA exemption and no fixed end date. Talks collapsed on August 21, the Prime Minister saying the US "asked too much and offered too little," and the duties took effect August 22. Ottawa answered with dollar-for-dollar counter-tariffs on C$27.6 billion of US imports from September 8, plus a C$7.5 billion support package. Further US proclamations followed: from September 15, Section 338 stacks on Section 232 for combined rates up to 75%, and import bans on goods including packaged alcohol and dairy took effect September 29 (UHY; Troutman Pepper Locke; Zonos; Finance Canada; White House; CBC). Estimates of the trade covered differ. The US put it at about US$20 billion of Canadian imports; Finance Canada's release referred to $27.6 billion; the Bank of Canada put it at about 5% of goods exports. These are different bases, and they are not reconciled here.
Housing. Housing was flat. The MLS Home Price Index rose 0.1% month-over-month in July, its first national gain since November 2024, and was unchanged in August; year-over-year it was down 3.3% and 3.0%. Average prices rose 0.2% and 0.6% over the same months. As we noted last quarter, that gap is the mix of homes sold, not broad appreciation (CREA). Locally, Toronto's benchmark was 4.5% below a year earlier in August (TRREB) and Greater Vancouver's 5.6% below (GVR). National average asking rents fell 4.8% year-over-year in August (Rentals.ca). CREA's Cathcart summarised the August data: "What has changed is the broader economic environment."
Markets. The TSX set a record close of 36,957.63 on August 25. It fell 2.85% in September to end the quarter at 35,235.87 (TSX Daily Trading Report; Globe and Mail). The loonie weakened as oil rose, against the usual pattern: USD/CAD went from 1.3760 on August 21 to 1.4168 on September 28 (Bank of Canada Valet).
Private Markets Impact
Q3 produced no single defining event for alternatives like Q2's May mortgage-fund gating. It produced a set of pressures pointing at one question: how much of a private portfolio's reported value and liquidity was underwritten for falling rates and a durable trade carve-out?
Household credit kept deteriorating. Consumer insolvencies reached 37,523 in the second quarter, up 6.9% year-over-year and the highest quarterly total since 2009 (CAIRP, August 14). The twelve-month total to June stood at 150,505, within 0.4% of the 2010 record (Office of the Superintendent of Bankruptcy, via CP). That borrower base sits behind much private mortgage lending, and the data predates both the rise in fixed rates and the tariff break.
The central bank put a number on private credit. A Bank of Canada staff analysis reported in August estimated Canadian investors' private lending at about $500 billion, together with Canadian bank lending to private-credit funds. Most of it is in the United States. The analysis described "potential channels of contagion" and noted that a sharp foreign downturn "could affect Canadian investors" (as reported by The Canadian Press; the paper's title and authors were not identified in coverage). Neither of the quarter's published Governing Council deliberations mentioned private credit.
Liquidity terms stayed under strain. Avenue Living Core Trust, a Canadian real-estate trust with a stated fair value of $6.6 billion, extended a redemption delay that has been in place since March 2026. The original pause of "up to six months" has now been exceeded, and no new timeline was given (Avenue Living, September 24; the manager's own disclosure, with no independent coverage found). In the US, Blackstone's BCRED received an estimated US$4.3 billion of Q3 redemption requests, about 10% of shares. It kept its 5% quarterly cap for a third consecutive quarter (CRE Daily). H1 secondary-market volume set records, estimated at US$118–124 billion depending on the adviser counting (Jefferies; Evercore; Lazard).
Private marks lagged public ones. The large pension plans' half-year results show the lag clearly. La Caisse reported 5.1% against a 7.5% benchmark, with its private-equity portfolio down 4.3% against an 8.0% benchmark, a result Bloomberg tied to AI-disruption repricing. OMERS' private equity returned 1.1% while its public equities returned 12.2% (Wealth Professional; Private Equity Wire citing Bloomberg; OMERS). These are institutional portfolios, not anything available to individual investors, but they show how far private and public valuations can diverge over six months.
What we did not find. On August 17, Trez Capital announced a temporary suspension of redemptions at five open-ended funds, four mortgage trusts and a real estate fund trust, after suspensions at all five in August 2025 and at four of them in February 2026 (Trez Capital). No other Canadian mortgage investment corporation or private-lender redemption gate dated in the quarter surfaced in our review. Nor did any public update on the Mortgage Company of Canada redemption suspension that began in May. Searches were broad but not exhaustive, and some sources are paywalled. The absence of coverage is not evidence of stability. We also found no Canadian credit-spread data for August or September. The latest reading was TD Asset Management's July 27 description of spreads "near the tightest levels of this cycle," so we make no claim about direction since then.
Regulation and enforcement. The CSA proposed codifying the expanded listed issuer financing exemption ($10 million to $25 million, up to $50 million for larger issuers), with comments closing October 21 (CSA). On July 21, in the Altmore MIC case, Ian Ross McSevney pleaded guilty to fraud and to distributing securities without a prospectus, involving about $5.3 million from about 30 Ontario investors between 2015 and 2019 (Canadian Mortgage Trends; OSC).
What We're Watching
October 28. The Bank of Canada's next decision and October Monetary Policy Report are the quarter's open question. Markets moved toward pricing a possible hike, but the Bank's words remain conditional — "prepared to adjust monetary policy as needed" — and market pricing is a probability, not guidance.
Whether core inflation follows headline. The September CPI release on October 19 will show whether the gap between headline inflation, near 3%, and core, below 2%, has started to close. That gap has been the main reason the Bank could hold. The September Labour Force Survey on October 9 and August GDP at the end of October will be the first releases that fully reflect the period after August 21. Most of the data released during Q3 describes the economy before the trade break.
The Section 338 trajectory. The duties have no fixed end date, no resumption of talks had been announced at quarter-end, and we found no new Canadian retaliation for the September 29 bans. For cross-border businesses and their lenders, a lasting regime is a different underwriting problem from a temporary one.
Liquidity in Canadian private real estate and credit. The Avenue Living extension, the 5% caps in US semi-liquid credit and the Bank of Canada's sizing of Canadian private-credit exposure point the same way. CAIRP's third-quarter insolvency data, due around mid-November, will show whether household stress continued to build after fixed rates rose.
Closing
Q3 2026 is a reminder of how quickly a settled story can fail. We closed our Q2 review describing a war premium that had come and gone. It returned within days, and by quarter-end oil, rates and trade policy had all moved against assumptions many private-market portfolios were built on: falling rates, contained energy costs and a CUSMA exemption that would hold.
The headline data were often reassuring — a 3.3% annualized second quarter, a July jobs surge, a record TSX close in late August — but they described the economy before the turn. What arrived after August 21 pointed the other way: job losses, flat monthly output, business confidence below 50 and a bond market repricing toward tighter policy. For private-market investors, the lesson is about timing. Reported values, distribution yields and underwriting assumptions all lag, and in a quarter like this one the lag is where the risk sits. The questions worth asking now are the familiar ones: at what rate was this loan underwritten, at what cap rate was this asset last valued, and how quickly can this fund return capital if the investors around you ask at the same time.
SOURCES
- Bank of Canada rate decisions (July 15 and September 2, 2026), July 2026 Monetary Policy Report, and Summaries of Governing Council Deliberations (July 29 and September 16, 2026): bankofcanada.ca
- Bank of Canada Valet — Government of Canada bond yields, USD/CAD, and CPI core measures
- US Federal Reserve FOMC statements (July 29 and September 16, 2026): federalreserve.gov
- Statistics Canada CPI, GDP and Labour Force Survey data, as reported by The Canadian Press, Desjardins, InvestingLive, HR Reporter, Advisor.ca and Wealth Professional (Q3 2026)
- Canadian Real Estate Association (CREA), TRREB, Greater Vancouver Realtors and Rentals.ca housing data (Q3 2026)
- UHY, Troutman Pepper Locke, Zonos, Polsinelli and Crane Worldwide — Section 122, Section 301 and Section 338 tariff measures; Finance Canada counter-tariff release (August 25, 2026); White House Section 338 fact sheet (September 8, 2026)
- CAIRP Q2 2026 insolvency statistics; Office of the Superintendent of Bankruptcy, via The Canadian Press
- The Canadian Press — Bank of Canada staff analysis of private credit (August 2026)
- Avenue Living (September 24, 2026); CRE Daily; Jefferies, Evercore and Lazard secondary-market reports (H1 2026)
- La Caisse and OMERS H1 2026 results, via Wealth Professional and Private Equity Wire
- CSA and OSC Bulletin (July 2026); Canadian Mortgage Trends
- Wikipedia oil-price chronology and 2026 Strait of Hormuz crisis pages, Al Jazeera, NPR — oil markets (ICE Brent futures)
- TSX Daily Trading Report; Globe and Mail; CFIB Business Barometer; The Hub and CTV (Governor Macklem, September 21, 2026)