Intelligent Investment
The “Strategy All Along”
Canada Monthly Market Commentary
April 29, 2025 2 Minute Read
The persistent escalation of the U.S. global trade war reached a critical point earlier this month when financial markets went through a rollercoaster of volatility. As the ‘reciprocal’ tariffs were revealed to be more broad and punitive than expected, stock markets reacted negatively amid growing concern of a global economic recession. Despite steep drops in equity markets, it seemed to have taken a bond market rout to trigger a U-turn in U.S. tariff policies, at least temporarily. The pressure point may have come as a result of the substantial sell-off in U.S. Treasury bonds that investors felt was losing its safe haven appeal following the somewhat chaotic and unruly approach on tariffs. Bond yields surged as a result, with the U.S. 10-year recording nearly 50 bps of increase over a 5-day period. This rapid rise in the cost of borrowing threatened to ripple across the U.S. economy and further fueled recession fears.
This 90-day pause, however, applied only to those ‘reciprocal’ tariffs. The U.S.’s 145% tariffs on Chinese goods remain in place, described by many as an effective trade embargo. Retailers are already adjusting: cargo bookings from China into U.S. ports were down by as much as 45 to 60% as of mid-April, and concerns were heightened of a potential supply shock that could see empty shelves and higher prices come year-end. Meanwhile the IMF cut its 2025 global growth forecast to 2.8% down from its 3.3% January forecast, which included a decrease from 2.7% to 1.8% for the U.S. – the steepest downgrade amongst advanced economies.
Against this backdrop, the Bank of Canada decided to hold its benchmark policy rate at 2.75%. The shift back to a wait-and-see approach followed seven consecutive cuts that kicked off in June 2024. This leaves the overnight rate firmly in the middle of the 2.25-3.25% neutral rate range, lending the central bank room to maneuver whatever comes next. Notably the central bank did not present an inflation forecast in its quarterly Monetary Policy Report, instead opting to provide illustrative upside and downside scenarios for the Canadian economy and inflation, a sign of present-day uncertainties.
On April 28th, the Liberals were elected to a minority government in their fourth mandate since 2015. Next steps will include the making of a new cabinet and recalling the House, followed by a throne speech expected to outline the federal government’s plans on trade talks, tax cuts, carbon pricing, and housing.
For the Canadian commercial real estate market, all this prevailing uncertainty has made for a challenging investment market. However, cap rates largely held steady in Q1 2025 according to the CBRE Canadian Cap Rates & Investment Insights report. Movements in national yields were generally muted with only marginal changes seen across the asset classes and categories. As financial markets eventually normalize, the recovery in real estate investment is expected to resume and regain traction over the remainder of the year.
Economic Highlights:
- Employment fell by 33,000 jobs in March 2025, its largest decrease since January 2022, and the unemployment rate rose to 6.7%.
- Headline inflation cooled to 2.3% in March 2025 while core measures CPI-median and CPI-trim largely held steady at 2.9% and 2.8%, respectively.
- Retail sales fell by 0.4% in February 2025 and preliminary estimates indicate a 0.7% increase expected in March 2025.
Viewpoints:
- U.S. Treasuries ‘fire sale’ sends long-term yields soaring worldwide
- Trump temporarily drops tariffs to 10% for most countries, hits China harder with 125%
- Cargo shipments from China to U.S. slide toward a standstill
- Bank of Canada holds rate steady at 2.75% amid trade war uncertainty
- Liberals return to power with fourth consecutive mandate
- CBRE Canadian Cap Rates & Investment Insights Q1 2025
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