08:10 AM EDT, 07/28/2025 (MT Newswires) -- Last week's economic calendar wasn't expected to move markets, said TD.

Equity markets drifted higher on optimism around United States trade deals, while bond yields edged up modestly after falling for most of the week, noted the bank.

Instead, the data offered a clearer picture of business and consumer sentiment, along with a detailed look at May's retail spending, stated TD. Both the Bank of Canada business and consumer surveys turned more negative in Q2, reversing the cautious optimism that had emerged late last year.

However, the interviews, conducted from late April through May, came after the temporary relief was granted to CUSMA-compliant trade, which helped ease some pressure. Recession concerns among firms and households ticked lower, and businesses reported modest improvement in some areas affected by trade.

Despite easing recession fears, the tone from businesses was far from upbeat. Domestic demand is expected to stay soft, pointed out the bank. Firms' future sales expectations turned negative for the first time in a year. The outlook for export sales improved for all but the manufacturing and auto-related sectors.

The investment outlook, while slightly better than last quarter, remains well below average and just a quarter of where it stood in late 2024. Even then, most firms are sticking to routine maintenance rather than expanding capacity or improving productivity -- a weak signal for Q3 investment outlook, it added.

On the consumer side, the BoC's new sentiment index showed a second straight quarterly decline, reflecting slowing spending growth. That was confirmed by May's retail sales report, which showed nominal spending down 1.1% and inflation-adjusted spending down 1.4% month-on-month. The sharp pull-back was led by auto sales, as the tariff-driven front-loading in March and April reversed course.

Core sales, which exclude auto sales and receipts at gasoline stations, were flat in nominal and real terms. The flash estimate for June sales points to a rebound, which could keep quarterly goods spending steady overall. But services will determine the broader trajectory of personal consumption -- and if consumers act on what they are saying in the survey, it will likely remain subdued.

Meanwhile, longer-term consumer inflation expectations ticked slightly higher, though are unlikely to cause much concern for the BoC. Firms also expect somewhat stronger input costs due to tariffs, though most say that they'll absorb them through profit margins given weak demand, according to the bank. Services inflation remains the sticking point.

According to the Canada Mortgage and Housing Corporation, new rents are falling thanks to increased supply. However, existing rent inflation remains elevated, even as it has slowed relative to last year.

In short, the data doesn't signal a collapse, but it doesn't suggest strength either, noted TD. Last week's releases don't shift the dial for the BoC with Wednesday's rate decision now essentially locked in -- the employment report sealed a hold. The real question now is whether it stays on hold in September and beyond.

For now, markets are only pricing in half a cut by year-end, sasid the bank.