MARKET UPDATE – February 10^th – February 21^st, 2025

In a Nutshell: After a bumpy ride over the last two weeks, global markets eked out marginal gains as investors digested warm inflation prints in North America and Europe, continuing to complicate the path for Central Banks.  Despite U.S. Crude Oil stockpiles increasing for a third week, WTI prices also increased this week.

U.S. Labour Markets

The number of Americans filing for unemployment benefits has fluctuated but remains within a stable range, indicating a resilient labour market.  Initial claims fell to 213,000 for the week ending February 8, beating economists' expectations of 215,000.

Jobless claims have generally trended lower this year, supporting economic growth and allowing the Federal Reserve to hold off on interest rate cuts while assessing the impact of President Trump's economic policies, including tariffs, tax cuts, and immigration measures.

 

U.S. Economy

Inflation & Interest Rates – Consumer prices rose 3.0% year-over-year, higher than expected, with core inflation (without food and energy) also accelerating.  Producer prices also increased more than forecast, reinforcing expectations that the Federal Reserve will delay interest rate cuts until at least the second half of the year.  Rising import prices, mainly due to fuel costs, added to inflation concerns.

Retail Sales & Consumer Sentiment – Retail sales fell by 0.9%, following four months of strong growth.   This was the largest drop in nearly two years, likely due to cold weather, natural disasters, and economic uncertainty.  Consumer spending may have been impacted by concerns over inflation and tariffs.

Industrial Production & Business Inventories – Industrial output rose 0.5%, exceeding expectations but slowing from previous months.  Business inventories fell for the first time in nine months, indicating strong domestic demand but also posing a potential drag on Gross Domestic Product (GDP) growth.

Overall, while the labour market remains stable and industrial output is climbing, inflationary pressures complicate the Federal Reserve’s policy path.

 

Canadian Economy

Canada's annual inflation rate rose 1.9% in January, up from 1.8% in December as lower prices (helped by a sales tax reprieve) were partly offset by higher cost of gasoline and natural gas.

 

"The punch line is the underlying core data are too warm, in my opinion, for Bank of Canada to continue easing." – Derek Holt, Vice President of Capital Markets Economics at Scotiabank

 

 

Eurozone and UK Economy

The UK economy grew unexpectedly by 0.1% in Q4 2024, outperforming expectations of a 0.1% decline.   GDP for the full year grew 0.9%, up from 0.4% in 2023, but per capita output fell by 0.1%, indicating ongoing pressure on living standards.  This is a sign that the UK economy is slowly beginning to change course, though challenges remain.

Eurozone Inflation – France's annual inflation rate was 1.8% in January, driven by higher energy and service prices, but monthly prices fell 0.2%.  Spain’s EU-harmonized inflation rose slightly to 2.9% from 2.8% in December, while core inflation declined to 2.4%.  This shows that there are still moderate inflation pressures within some of the largest economies in the Eurozone, and therefore not a clear path for further rate cuts.

Eurozone Industrial Production – Industrial output shrank by 1.1% in December, a larger drop than the expected 0.6%, with Germany and Italy seeing the steepest contractions of 2.9% and 3.1%, respectively.  Compared to a year ago, output was down 2.0%, with capital goods production plunging 8.0%, reflecting weak business investment.  Eurozone industry remains in a prolonged recession, weighed down by high energy costs, weak Chinese demand, and outdated manufacturing models.

 

Asian Economy

Japan’s economy expanded 0.7% quarter-on-quarter, exceeding forecasts of 0.3%.  Annual GDP growth reached 1.2%, twice the Bank of Japan’s (BoJ) sustainable growth rate estimate.  Growth was mainly driven by net exports, as imports fell 2.1%, while exports rose 1.1%.  Domestic demand remained weak, with private consumption up just 0.1%, and public demand unchanged.  Japan’s economy outperformed expectations, but growth was heavily reliant on exports, not domestic demand.

Inflation Trends - Core  Consumer Price Index (CPI) inflation likely accelerated to 3.1% in January, marking its fastest pace since August 2023.  Wholesale inflation hit a seven-month high of 4.2%, reinforcing expectations of another BoJ rate hike.  Rising food and energy costs are weighing on consumer sentiment, potentially delaying rate hikes.  Inflation remains a concern, driven by high food and energy costs, which leaves the Bank of Japan cautious about rate hikes, balancing inflation risks with weak consumer sentiment.

 

Energy

There was a massive increase in U.S. crude stockpiles to 9 million barrels last week, far exceeding the expected 2.8 million barrels.  The trend continued into this week as stockpiles rose by an additional 4.6 million.  This surplus suggests weaker demand, a bearish signal for crude oil prices.

On the other hand, there was a larger-than-expected drawdown in natural gas storage, surpassing forecasts.  This signals stronger demand for natural gas, a bullish indicator for prices.   The decline is significantly larger than the previous weeks, highlighting increasing consumption.  Given Canada's heavy reliance on the energy sector, this could be a boon for the Canadian dollar on a backdrop of weakness.

 

Reuters Market Updates http://www.reuters.com

Bloomberg Market Updates - https://www.bnnbloomberg.ca/markets

 

Market Data	S&P/TSX	S&P 500	DOW	NASDAQ	STOXX EU	WTI	GOLD
Last Week	0.2%	1.5%	0.5%	2.6%	1.2%	-0.4%	0.5%
This Week	-1.3%	-1.7%	-2.5%	-2.5%	0.7%	-0.7%	1.7%

Market data taken from https://www.marketwatch.com/

 

 

 

MacroMemo - February 11 – March 3, 2025 by Eric Lascelles Link to Article

New steel and aluminum tariffs – President Trump announced a 25% tariff on all steel and aluminum imports, signing an executive order on February 10.  Similar tariffs were imposed in 2018, but were later partially lifted for some countries (e.g., Canada & Mexico).  This time tariffs may remain indefinitely, aligning with President Trump’s broader trade strategy.

Canada is the largest exporter of steel ($13B) and aluminum ($9.5B) to the U.S., with Mexico ($6.5B in steel) and Brazil/China following behind.  These trade measures could reduce Canada’s GDP by 0.2%-0.3% and the U.S. GDP by 0.1%-0.2% if sustained.

Canada dominated aluminum exports to U.S. in 2024

 

Europe as a Target for Tariffs – EU collectively imports more U.S. products than Canada but maintains a trade surplus with the U.S.  President Trump may demand more military spending from Germany, France, and Italy, which spend less than 2% of GDP on defense.

The U.S. announced a sweeping reciprocal tariffs measure, that stated they would match any existing tariffs put on them by other countries.  While a broad based measure, this was largely seen as applying additional pressure on the EU specifically, which had many long standing asymmetrical tariffs on U.S goods.  This measure may be adequate to yield the results the U.S. is looking for, or they may shift to targeting certain products.

If so, potential tariff targets in Europe could be autos, agriculture, pharmaceuticals, industrial machinery.

The U.S. could also push for stricter agricultural protections and other regulations, or to eliminate the EU's digital services tax.

Despite having a trade surplus with the U.S., Japan does not impose tariffs on U.S. vehicles and has minimal agricultural tariffs, making it a less likely target for U.S. tariffs.

President Trump is also considering tariffs on multiple sectors worldwide in addition to steel and  aluminum, such as copper, oil & gas, pharmaceuticals, and semiconductors.

 

Possible tariff scenarios: We budget for an increase in tariffs over the next year

 

 

The U.S. economy continues to grow at a moderate pace, with a mix of strong and stable indicators:

• The ISM Manufacturing Index rose to 50.9, signaling growth for the first time in months, while the ISM Services Index dipped slightly but remains in line with historical trends.
• Q4 GDP grew at 2.3% annualized, slightly below 3% expectations, but still solid and consumer spending remained strong at 4.2% annualized growth.
• The Fed held rates steady at 4.25-4.50% and is unlikely to cut rates soon and markets have priced in less than 50% chance of a rate cut until June, with full pricing in by September.

 

Wicks Quinn Houghton Group are Investment Advisors with CIBC Wood Gundy in Calgary, Alberta, Canada. The views of Wicks Quinn Houghton Group do not necessarily reflect those of CIBC World Markets Inc.

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