EUROZONE ISSUANCE: EGB Supply - W/C 25 August (2/2)

• Deutsche Bank have noted that while at first glance, there seems to be a lot going right for Canada, a closer look takes a lot of the gloss away. This leaves them with a bearish near-term bias and continuing to favour EUR/CAD topside, which is up ~1.5% since recommending the position in their FX blueprint. They focus on the following fundamentals:
• The recent employment print was certainly strong, but it follows a string of weakness that still leaves Canada’s unemployment 2%pts above the trough – the worst in G10. Separately, both the Ivey PMI and BoC business survey suggest GDP growth could slip to zero.
• The BoC survey finds the uncertainty around tariffs is delaying capex plans and affecting corporate margins since passing on the cost is tough. Tariff uncertainty is also visible in the goods trade balance, which slumped to the largest deficit in decades and in net terms, portfolio flows have worked against CAD.
• The Carney government is indeed planning to spend more on defence and other capex. But it's targeting substantial cuts to operational spending (7.5%+ per year) to fund some of that. The fall budget will contain important detail.
• Overall, DB believe this points in the direction of further BoC easing and it's notable how little is priced (less than 25bps to the trough).

German Chancellor Friedrich Merz hosts French President Emmanuel Macron in Berlin this evening for a private dinner intended to further solidify the Franco-German relationship. The talks will almost inevitably focus on the two major geopolitical/geoeconomic issues facing both countries: the threat posed to trade by US President Donald Trump's 'reciprocal' tariffs, and the need to significantly increase defence spending and bolster ties on military procurement. 

• Earlier today, Bloomberg reported that the EU was readying a plan for 30% levies on EUR100bln of US imports if no deal can be reached on tariffs with Washington. Nevertheless, Merz remains much cooler on the use of the 'anti-coercion instrument' than Macron. The German gov't is also much more keen on FTAs with third countries and other blocs, while France has been more reticent. This is most notable on the division over ratifying the Mercosur-EU trade deal, which faces visceral opposition from French farmers.
• On defence, divisions were evident over plans that would see European NATO members purchase US-made weaponry in exchange for sending their own supplies to Ukraine. Germany sided with the Nordics and UK in backing the plan, while Macron advocated for sending European (ideally EU)-made equipment. There is also a brewing row over the Future Combat Air System fighter jet project. Initially set to be developed by Franco-German Airbus and Spain's Indra Sistemas, France's Dassault Aviation has sought to become involved, leading to accusations of the solely French firm undermining the project.
• Today's meeting comes ahead of a full Franco-German joint cabinet meeting in late August. 

The White House has released its Artificial Intelligence 'Action Plan', laying out policy proposals for the Trump administration to pursue to ensure "dominance" in the industry. WEBSITE LINK  PDF LINK President Trump will formally unveil the plan at the ‘Winning the AI Race’ summit, at 17:00 ET 22:00 BST. 

• The plan purports to "accelerate AI innovation" by removing "red tape" and "onerous regulation". It lays out a strategy for building AI infrastructure by developing "streamlined permitting for data centres" and "restoring semiconductor manufacturing".
• The plan advocates for "exporting American AI to allies and partners" and countering "Chinese influence in international governance bodies".
• It states that American energy capacity has "stagnated" while China has "rapidly built out their grid,". Says that "America’s path to AI dominance depends on changing this troubling trend."
• The plan outlines "three pillars: innovation, infrastructure, and international diplomacy and security." Arguing that the US needs innovate faster and more comprehensively than our competitors in the development and distribution of new AI technology across every field..."
• The plan outlines a raft of policy proposals to develop AI talent for public and private sector applications and "new infrastructure—
  factories to produce chips, data centers to run those chips, and new sources of energy to power it all."
• Policies action recommended by the plan include: "Ensure access to large-scale computing power for startups and academics..." and "Invest in developing and scaling foundational and translational manufacturing technologies ... using the Small Business Innovation Research [and other] program[mes]".