Intelligent Investment
New (Uncertain) World Order
Canada Monthly Market Commentary
March 26, 2025 2 Minute Read
For the last three months, the persistent threat of U.S. tariffs and those that did come to pass have effectively paralyzed much of the business environment with confusion and uncertainty. Once again, another 30-day reprieve on tariffs is coming to an end and Canada faces another bout of U.S. tariff deadlines. This time, “reciprocal tariffs” are the newest threat alongside the expiring delay on blanket 25% levies on most Canadian goods. While there has been recent speculation that these “reciprocal tariffs” may not be as all-encompassing as originally feared, there remains little guarantees until the official announcements on April 2.
Financial markets have responded negatively so far to the overarching trade uncertainty, with the S&P 500 Index falling briefly into correction territory of over 10% below its last peak. Fueling concerns are the growing number of corporations that have lowered their sales forecasts for the year amid the current uncertainty. Meanwhile, the Canada 10-year bond yield continues to hover near 3.0% and about 20 bps lower than at the beginning of the year.
With no clear path yet to the end of the trade war, there is growing concern that this prolonged conflict could push the Canadian economy into a recession. Growth forecasts are being downgraded, however, the situation remains highly fluid and can change quickly.
In what appears to be a largely defensive move, the Bank of Canada also made another 25 bps cut this month to lower its policy interest rate to 2.75%. Despite clear indications of inflation holding within target and the economy showing signs of improvement, all of which would have normally justified a pause, the central bank proceeded with another cut citing the pervasive trade uncertainty. While this latest move will likely help the economy somewhat, the Bank of Canada has emphasized repeatedly that “monetary policy cannot offset the impacts of a trade war.” Especially as trade conflicts escalate, the Bank of Canada may start to face the challenge of balancing tariff-induced inflation increases against a flagging economy.
Economic Highlights:
- Employment held steady in February 2025 with a marginal increase in jobs and the unemployment rate unchanged at 6.6%
- Headline inflation rose to 2.6% in February 2025 but was largely attributed to the end of the temporary sales tax break.
- Retail sales fell 0.6% in January 2025 and preliminary estimates suggest a further 0.6% decrease in February 2025.
Viewpoints:
- Possible softening of April 2 tariffs ‘zero comfort’ for industry leaders
- Stocks Tumble Into Correction as Trump Policies Roil Sentiment
- Trump tariffs expected to drive Canada into recession
- Recession risks rise for all three North American economies over US tariff chaos - Reuters poll
- Bank of Canada cuts rate amid ‘new crisis’ of trade war with the U.S.
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