07:04 AM EDT, 10/06/2025 (MT Newswires) -- The mood in Canadian financial markets was somewhat sour last week, except that the unrelenting bull run in equities continued, said TD.

This was despite the United States government shutdown, and a fresh set of U.S. tariffs placed on lumber (10%) and kitchen cabinets, bathroom vanities, and upholstered furniture (25% each). Tariffs on the latter categories are unlikely to massively dent the Canadian economy, although if stacked on to existing duties, the lumber tariffs would yield a 45% import tax on Canadian lumber, noted the bank.

President Donald Trump has also pledged tariffs on branded pharmaceuticals and heavy trucks at a later time. Notably, Prime Minister Mark Carney will meet Trump Monday to discuss trade and other important issues.

Developments in other financial markets signaled some more concern about the economic outlook. The Canadian 10-year yield was down a few bps last week, following its U.S. counterpart lower amid the government shutdown. Meanwhile, oil prices traded near multi-month lows, weighed down by both demand and supply concerns.

There is reason to be apprehensive about Canada's economic backdrop, with troubling signs aplenty in the jobs market, stated TD. There were no major data releases last week.

However, September's Labour Force Survey (LFS) data is on tap for next Friday. So far, the LFS has painted an ugly picture of the current jobs market, with a cumulative 100,000 jobs lost in July and August. Part of this story is tied to demographics and labor supply, with rapidly slowing population growth reducing the labor force so far in Q3, pointed out the bank.

And there's a good chance this dynamic shows itself again this week, added TD. However, labor demand is also soft, evidenced by falling job vacancies, while wage growth is slowing and the unemployment rate is on the rise.

One way a slowing jobs market will impact the economy is through household spending. Consumer spending was surprisingly resilient in the first half of 2025, which the bank chalks up to past rate cuts, a rise in housing market activity, and travelers choosing to stay (and spend) in Canada instead of heading to the U.S.

However, TD questions the durability of this spending strength, given Canada's slowing population growth and, crucially, it's weakening jobs market. As such, the bank thinks Canadian consumption is likely to post sub-trend growth performances moving forward.

Policymakers are certainly aware of the downside risks to Canada's economic growth. Minutes from the Bank of Canada's deliberations ahead of their September rate cut were released last week. They were dotted with dovish statements, including the observation that upward momentum in core inflation had diminished, the labor market had softened, and most counter-tariffs on U.S. products had been removed, reducing Canadian inflation risk.

As of now, markets see a 60% chance of a follow-up rate cut by the BoC this month. However, TD thinks the BoC will pull the trigger given the weak economic backdrop.