Playing Defence

CIBC Perspectives

Playing Defence: an analysis of the security and spending commitments made at the June G7 and NATO summits

Tuesday, June 24, 2025

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Hello, everyone. I’m Roman Dubczak, Deputy Chair of CIBC Capital Markets. On today’s webcast, we will discuss the G7 and NATO summits that took place recently and the impact of geopolitical events on energy prices. On June 15th, Prime Minister Carney hosted the 2025 G7 Leaders Summit in Kananaskis, Alberta focused on building a new era of collaboration. Yet the summit was perhaps most notable for President Trump leaving early to deal with the Middle East crisis. And this week, the Prime Minister traveled to Brussels to take part in the EU, Canada and NATO summits. While the agenda for the meetings was wide ranging, inevitably, the focus became defence and security. With the worsening conflict in the Middle East, we know volatility and uncertainty are likely to be with us for some time to come. To help us make sense of how these issues play out, I have with me today, The Honourable Lisa Raitt, Vice-Chair of Global Investment Banking, and Ian Pollock, Managing Director and Head of Fixed Income, Currency and Commodity Strategy at CIBC. Lisa, Ian, thank you for joining today.

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

Thanks Roman.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Going to be a very interesting conversation, I think. There’s a lot to cover, but let’s start with the G7 summit.

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

Yeah.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

You’ve seen a few of these Lisa. What’s your assessment of how it went? And, you know, how does this play out for the future?

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

In this case, boring is better. And it was boring in a sense that there were no big blow ups. There were no big signing ceremonies. President Trump came, which is remarkable because there’s a lot going on in the United States right now. So, we came in… They seemed to have some good conversations. He left early. I wouldn’t take anything from that other than what you said, which is he had to go back to manage a real conflict. But I think Prime Minister Carney can be very happy with how the G7 turned out. But it really was just a platform to the two different meetings that we saw that came after the EU, Canada one, and then of course, NATO, that’s happening this week.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

And the tie in there is, at a NATO summit which is occurring as we film this,

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

Yeah.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

… is to have all the members of NATO step up for their 2%…

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

Yeah.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

…defence spending. Any way to look at that in the Canadian context?

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

Yeah. So, definitely Canada is there.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Yeah.

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

The promise has been made. Prime Minister Carney said, “We’re going to get there by the end of the year.” He’s going to do it creatively. Yes. The armed forces are going to get a raise, which they probably really deserve because they haven’t received one in a long time. There’s going to be a lot of repairs made to stuff that’s broken. They’re going to move the Coast Guard from where it sits now in fisheries and are going to move it DND (Department of National Defence). So, that’s all kinds of creative accounting to move it. But, the key part of this was his agreement with the EU that they would seek to be able to trade with each other in the space of defence. So, opening up the door to a possible deal for German submarines instead of looking towards the United States. So, knowing that the states kind of pivoted toward Australia, and India, and Japan and not so much Canada when it came to these, these bigger projects, it makes sense for Mr. Carney to go to the EU and develop some kind of agreement going forward as to where we’re going to be able to either supply or procure what we’re going to be needing in order to rebuild it. The problem, though, Roman, is this we finally get to two and the world wants to go to three and a half, and maybe they want to go to five. So, it’s tough for us, to get to those numbers. But, you know, I think the way in which the Prime Minister is approaching this is very cautiously and very step wise. So, he goes to the EU meeting and he goes to NATO, but he goes with some really important legislation from Canada in his back pocket. He passed a bill, with the help of the conservatives remember, to give himself extraordinary powers to be able to build big projects in this country, which, as we know, and our clients know, has always been a complaint about Canada.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

That’s right.

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

“How long is it going to take?” So, now Mr. Carney gets to go and say, it’s not whether your project is going to get approved, it’s how quickly will your project get approved? That’s a game changer, especially when you go to these kinds of meetings.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Yeah, it’s really given him street cred, so to speak.

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

Oh they like them, yeah.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Yeah. Good, good. Thanks. So, Ian, we have in our lives witnessed many Mideast crises over the course of time. This one seems a little bit different in the sense that the impact on oil markets is not what one would have forecast occurring. What’s your view on, you know, how this crisis has to date evolved? I’m sure there’s more to this obviously as it as it goes. What’s your read on the, on the volatility in the oil markets.

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

So, you had a very standard response across lots of asset prices. And so, oil prices obviously rose very quickly. They’ve since erased all those gains. And equity markets are at all time highs. Even though the night of some of the bigger parts of the conflict, you saw a very normal response. So, interest rates fell, equities fell, oil prices rose. All that’s unwound because we’re not in the standard period of time. And so, I think the world is looking at this saying, well, “it’s almost too bad for this to continue. And therefore we’re going to reprice any of the worst case outcome.” What it means, though, is that volatility is just remains very high. And I think that’s a theme we’ve all talked about this year, tail risk remains very big. Windows of opportunity remain very small. And so, I would expect that to continue for the near-term.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Yeah. You know, when you saw the news items on, you know, CNN the night before and then, “oh, the futures are trading down.” And to your point, the normal sort of response, that struck me almost as the models kicking in and then, are we in an era where some said, “Whoa, whoa, whoa, whoa… I know those are the models, but actually, this is probably where this all goes.” Are we in a new era of someone actually paying attention to what’s going on?

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

Listen, I think that the ‘robots’, for lack of a better word, kicked in right away. And they’re trained on historical behaviours. And, that’s what the historical footprint of the market would have told you to do. Until someone said, hold on a second…

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Yeah.

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

Maybe this is a little bit different. And so, that’s when I think human judgment comes in. But it shows you that there’s a lot of noise relative to signal, at least on the initial stages of any type of crisis that we’re dealing with.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Right, right. And on the, you know, the topic of read through on these things, obviously, prior to the recent conflict, all eyes were on rates, and central banks, and (Jerome) Powell etc., etc. Now, strikes me as though as this conflict abates a little bit back on Powell, back on rates, you know. Is there any read through here of the recent events, NATO, all these things fed into the narrative as to, you know, where things might be going with the US economy and rates?

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

Oh, for sure. I mean, this has been the year of distractions. So, you had trade, negotiations in the first part of the year, that got people concerned about a Canadian recession that just hasn’t happened. – Right. Then you had geopolitical tensions which, kind of, distracted from everything, which also distracted from central bank reaction functions. And now we sit in a world saying, “Well, hold on. Canada has the lowest effective tariff rate in the world to the US. Maybe the Bank of Canada has done cutting interest rates. The whole world is expanding their fiscal footprint through defence, and someone’s got to pay for it.” And so, I think for all the negative macro impulses that we keep getting concerned about, the one commonality here is that there’s more bond supply. And there’s more bond supply in a period where inflation is just higher than average. And so, what we’ve seen is a lot of very activist policies from finance departments. In the UK, they’re issuing fewer long-term interest rates. In Japan they’re issuing fewer long-term bonds. And so, you have this tug-of-war almost between what needs to come to market and these activist policies to try and reduce the volatility in the back end. When I think about it, though, and the message has been very clear the entire year, whatever level of unemployment rate, whatever level of overnight rate, the level of interest rates will be higher than what we’re used to. Period.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Right. On the defence spending point, clearly that’s additive to the Canadian budget. Was there any narrative about, okay, yeah, I understand you’re not debating the 2% thing, but it’s a lot more money. It’s like $9 billion or somethign like that. Was there any discussion on the desk about, you know, where’s this coming from?

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

For sure. And so, the big question we have is, well, how are you going to manage this borrowing? Are you going to do it through the most benign route. So, issue more treasury bills? And there’s always appetite for short duration instruments. Or, do you actually lock us in for 30-years? In theory, you should be locking this in for as long as possible, they’re long depreciating assets. But that’s unlikely what’s going to happen. So, I suspect it’s a bit more benign in the composition. Probably get a little bit more short-end financing, but the realization here is that Canada has the fastest growing bond market in the G7, 25% year-on-year. Now, obviously the notional is smaller than the US, but the delta is very big.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Yeah.

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

And so, who’s buying our bonds? And that’s the question we keep discussing. And there has to be additional compensation, because it’s the private sector, it’s not the public sector.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

For sure, for sure. Well very interesting. So, now you know in terms of our clients who are, you know, with us today, how does one play this? Do we just sit back and watch it all unfold and like hopefully this all works out well, or is there any proactive move in that regard? Ian, maybe I’ll start with you on the desk and then, Lisa, you know, from a from macro perspective.

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

So, there’s two things. Number one is and I’ve said this before, windows of opportunity are very small.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Right.

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

And whether that is opportunistic in terms of making money or opportunistic in terms of coming to market with an issue or opportunistic in terms of hedging, windows are very small. Trust your partners at CIBC and try to get something done. The second thing to remember is that, it will be the year of distractions. And so, I am very certain something else will happen, whether it’s a delaying of tariffs or we’re in that purgatory until January, which you can kind of map that out through the legal system, it hasn’t gone away. And so, the stark reality here is that a lot of the preexisting risks that we are forgetting about almost every week are still lurking beneath the surface. And so, momentum is to be questioned, not to be used as a go-with.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Good strong observation. I would say, you know, we’ve been through a bit in the last five years. As a practitioner, would you say the ability to move, pivot quickly is something that the market’s better at now? Like, COVID, interest rates, various elections, etc.?

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

Sadly, no.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Oh, okay.

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

But I do think the market is better at protecting what its core belief is. And so, if core belief is A), and there’s a bunch of evidence that undermines that, they’re very good at protecting their core beliefs.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

All right.

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

And I think that’s true in almost every asset class we’ve been seeing.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Okay. Interesting. So, Lisa over to you.

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

Yeah. So, I think what clients have to remember that there are milestones that we’re going to be bumping up against. So, you’re going to see a Canadian budget that’s going to come out in the fall. It’s going to be a bit of a shock to see what the numbers are going to be in terms of the deficit at the bottom. And the question will be, “How are we going to pay for it all?” And, is it going to be through what you talked about, or is it going to be through government cuts, which is what some people are worried about right now? I think the second thing we have to think about and focus on is the one that is a real existential threat to us other than a Mideast conflict, is the tariffs and what’s happening vis-a-vis the United States with trade. Clearly, the president and the administration is focused on something else right now. They’re not focused on tariffs. So, while at the G7, Prime Minister Carney said, “We’re going to have a deal in 30 days.” That would be aspirational, I think, in terms of time. I would be more than happy to be wrong when I say that you’re not going to have a deal in the next 15 days, but the reality is, is that they’re thinking of other things at the moment.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

For sure.

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

The other large, I would say, milestone to think about is the midterms next year for the United States and how that is going to actually play into how quickly or slowly the President moves on items that are really important to Canada. He doesn’t need to necessarily do any trade with us or any kind of deal until 2026.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Right.

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

He’s not bound to. It’ll get more and more pressure filled the closer we get to those midterms, and there’ll be more incentive for him to do a deal and do we want to let that pressure point build? So, clients, surf instead of dive, you know, just try to stay on top of what’s happening. And we’re always happy to bring people up to date.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

For sure. When do you think, the midterms actually start, start, you know, in terms of posturing, positioning, etc.?

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

Yeah.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

It’s about a year, Well, it’s more than a year…

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

I would say, September. Once you get through The One Big Beautiful Bill. Once it makes its way through the House of Representatives, then the Senate, and maybe have to go back to the House of Representatives, actually, and then gets across the finish line with the president himself, that’s when they’ll start thinking of themselves and whether or not they’re going to be getting their primary in place. And are they being challenged, or will they be the banner carrier for their party? You’re very, you know, self-contained. And then, of course, it’s funny, when Ian talked about you may not expect things to happen. Who would have thought that Elon Musk and Donald Trump would have had such a public falling out…

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Yeah.

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

…at the beginning of the month? And they did. So, things like that can happen. And they do matter in the politics of the United States.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

Yeah. That seems like such a long time ago now that you mentioned it, wow. Well, great. Well, Lisa, Ian, great conversation as always.

The Hon. Lisa Raitt, Vice-Chair, Global Investment Banking, CIBC Capital Markets

For sure.

Ian Pollick, Managing Director & Head, Fixed Income, Currency and Commodities Strategy, CIBC Capital Markets

Thanks.

Roman Dubczak, Deputy Chair, CIBC Capital Markets

I want to thank you for this. And you know, there’s always something to talk about. – Always. Some days it’s more spicier than others. Thank you. And to our clients, watching our team of experts are here to provide you with the guidance, as you may imagine, and the support you need. So, please reach out to any of your friends at CIBC. We’d love to carry on the conversation and help you sort through today’s issues. And we’ll continue to produce regular content in order to provide more timely insights on the issues that matter to you. Thanks for joining us today.

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