MARKET UPDATE – March 24^th – April 4^th, 2025

In a Nutshell: After a volatile two weeks, markets saw a significant sell off on the back of President Trump’s announcement of sweeping reciprocal tariffs on Wednesday. Amidst the announcements it was apparent that Canada and Mexico were not as severely impacted as previously anticipated, however if USMCA product exemptions are revoked this could change swiftly.  Markets are now anxiously awaiting the European response to their 20% tariffs.

U.S. Labour Markets

Job Growth and Payrolls: U.S. private payrolls rose by 155,000 jobs in March, surpassing economists’ expectations of 115,000.  February payrolls were revised upward to 84,000 from the previously reported 77,000.

Unemployment Claims: Initial jobless claims fell to 219,000 for the week ending March 29, better than the forecasted 225,000.  While claims for unemployment benefits by federal workers have not surged, claims in the Washington, D.C. area have risen, possibly linked to government downsizing.

Job Market Weakness: The U.S. Job Openings and Labor Turnover Survey (JOLTS) showed job openings fell to 7.568 million in February, down from 7.762 million in January.  Job openings have declined by 877,000 over the past year, indicating a slowing labor market. Hiring remained stable, but worker quit rates resemble levels from the mid-2010s, suggesting weaker job mobility.

While low layoffs are preventing a major downturn, the combination of slower hiring, declining job openings, and tariff risks presents economic challenges.  The labour market remains resilient for now, but future growth may be at risk due to policy uncertainties and trade tensions.

 

U.S. Economy

U.S. Gross Domestic Product Growth Slows: Gross Domestic Product (GDP) growth for the quarter stood at 2.4%, slightly above the 2.3% forecast, but lower than the previous 3.1% growth.  While the economy is still expanding, the slowdown suggests weaker momentum.

Factory Orders and Manufacturing: Factory orders increased by 0.6%, slightly above the expected 0.5% growth.  While the increase suggests a resilient manufacturing sector, it marks a slowdown from the previous 1.8% growth.  Further to that, the ISM Manufacturing Purchase Mangers Index (PMI) fell to 49.0, below the expected 49.5 and down from 50.3 in the previous month signals a weakening manufacturing industry due to supply chain disruptions and other challenges, and in contraction territory.

Services Sector Strength: The U.S. Services PMI came in at 54.4, exceeding the forecasted 54.3 and significantly improving from 51.0 in the prior month.  The report suggests expansion in sectors like IT, finance, transport, and hospitality.

Inflation and Consumer Spending: The Core PCE Price Index, a key inflation gauge for the Federal Reserve, rose 0.4%, above the expected 0.3%.  Year-over-year, core inflation hit 2.8%, slightly higher than January’s 2.7%.  Durable Goods Orders however defied expectations, rising 0.9% instead of the forecasted -1.1% drop.  This resilience suggests strong consumer and business demand, benefiting the economy.

A strong Services PMI and resilient Durable Goods Orders support the USD, however, slowing GDP growth, weaker manufacturing, and declining building permits raise concerns.  Inflation remains above the Fed’s 2% target, which is challenging in the face of tariff headwinds.  Both of which may delay rate cuts, further influencing market trends.

 

Canadian Economy

Manufacturing contraction: Canadian manufacturing faced a sharp decline, with new orders falling at their steepest rate since the start of the COVID-19 crisis.  Manufacturing PMI dropped to 46.3 from 47.8, the lowest since December 2023. U.S. imposed a 25% tariff on imported vehicles, adding to existing tariffs on steel and aluminum.

GDP growth amid trade fears: Canada’s GDP grew 0.4% in January, continuing recent economic momentum.  Growth was driven by cross-border trade adjustments to avoid U.S. tariffs.  Bank of Canada (BoC) warns that tariffs and uncertainty may slow future growth.

Retail and factory sales decline: Retail sales fell 0.6% in January due to weak auto and grocery purchases after the holiday season.  Factory sales likely fell 0.2% in February, mainly in food, petroleum, and coal sectors.

Despite a significant impact to the Automotive, Aluminium and Steel industries, Canada appears to have avoided deeper tariffs imposed by the United States at this stage, which suggests the economic strain from trade tensions may not be as severe as first expected.  Canadian Equities have already been upgraded by select analysts.

 

Eurozone and UK Economy

Inflation slower than expected: Annual Consumer Price Index (CPI) in UK rose 2.8% in February, down from 3.0% in January, below analyst expectations.  Monthly inflation increased 0.4%, reversing the 0.1% decline in January.  Eurozone inflation fell to 2.2% in March (from 2.3%), driven by lower energy costs. Core inflation also declined to 2.4% from 2.6%, increasing chances of an European Central  Bank (ECB) rate cut on April 17.  Germany’s inflation also fell to 2.3%, below expectations, Spain’s inflation dropped to 2.2%, its lowest since October, while French inflation remained stable at 0.9% year-on-year, below forecasts. supporting the case for further ECB interest rate cuts.

UK recovery signs: UK PMI rose to 52.0 in March, a six-month high, indicating slight economic growth.  UK economy has stagnated since Labour took power but is showing early recovery.  Chancellor Rachel Reeves is also preparing to announce welfare and government department cuts in her Spring Statement.

Eurozone growth stabilizing: PMI rose to 50.9 in March (from 50.2), suggesting modest economic growth. Factory frontloading ahead of U.S. tariffs may have contributed to the expansion.  Germany’s service sector growth slowed however, with new business inflows declining at the fastest rate in six months.

Labour market challenges: Germany’s unemployment rate rose to 6.3% in March, the sharpest increase since October 2024; 26,000 more people became unemployed, signaling economic struggles despite labour shortages.

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	-0.8%	-1.5%	-1.0%	-2.6%	-1.6%	1.6%	3.1%
This Week	-6.3%	-9.1%	-7.9%	-10.0%	-8.3%	-10.1%	-1.9%

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

 

 

 

CIBC Economics: ECONOMIC FLASH! Reciprocal tariffs: No news is good news for Canada (sort of) by Andrew Grantham & Ali Jaffery Link to Article

 

Canada avoids new reciprocal tariffs but remains subject to previous tariffs on autos, steel, aluminum, lumber, and fentanyl-related goods.  USMCA compliance improvements could lower Canada’s effective tariff burden below the 10% baseline set for other nations, potentially reducing it to 5% or less.

Economic impact on Canada: Canada and Mexico are exempt from reciprocal tariffs as long as fentanyl/immigration-related tariffs remain.  If those exemptions end, Canada would face a 12% tariff on non-USMCA goods.  Tariffs hit key sectors such as steel, aluminum, autos, lumber could shrink GDP by 1.5% to 2.0%.  An estimated 125,000 job losses in those affected industries.

Tariffs may hurt Canadian exports by slowing U.S. and global growth.  Q2 GDP could be negative due to uncertainty, despite strong Q1 exports.

Global and U.S. economic concerns: Other countries face higher tariffs through reciprocity with the EU hit by 20%, Japan by 24%, and China by 34%.  The average U.S. tariff rate is now close to 20%, which could reduce U.S. GDP by 1-2%.  Inflationary effects may delay U.S. Federal Reserve rate cuts, adding economic uncertainty.  Other nations, particularly East Asia (tariffs up to 50%) and the EU, may negotiate to reduce tariffs.

Bank of Canada’s likely response: April pause on rate cuts due to better-than-expected tariff outcomes.

The real solution lies in negotiations to de-escalate the trade war with the U.S. Canada's economy is relatively stable for now, but further government actions will be key and the longer-term impact of USMCA renegotiation with Trump remains a concern.

 

“Liberation Day” Reciprocal Tariffs

Source: X @WhiteHouse

 

 

 

This Week with Sadiq: Carney vs. Poilievre: A step forward or just more uncertainty?

 by Sadiq Adatia, Chief Investment Officer Link to Article

 

Canada’s federal election is set for April 28, with Liberal leader and newly sworn-in Prime Minister Mark Carney facing off against Conservative leader Pierre Poilievre in what polls suggest is a tight race.  While the election introduces some political uncertainty, it is also seen as a potential reset after years of Justin Trudeau’s leadership, which had lost public confidence.

338 is a polling aggregator and shows the Liberals in the lead, however the historical accuracy individual of polls in their aggregate does not appear to inform the inclusion or weighting of those polls.  Other factors to consider when looking a Liberal lead on aggregate are response bias (who is likely to complete a poll if contacted – tariff threats have evoked a response from many voters), likely voters (Angus Reid shows the Conservatives have a stronger conviction to vote), and how to accurately poll those who did not vote in the previous election.  Most elections hinge on voter turn out, which is often a poorly assessed factor in polling.

 

A close race: Liberal are ahead according to 338 Canada Polls

 

Carney, with his experience as the former Governor of both the Bank of Canada and the Bank of England, appears to have an advantage in leadership credentials, but Poilievre remains a formidable contender.  The change in leadership could also impact U.S. - Canada relations, potentially giving Donald Trump an opportunity to reset diplomatic ties by attributing past tensions to Trudeau.  However, Canada has recently taken a firmer stance against Trump’s tariffs and rhetoric, meaning trade tensions could still escalate.

Markets are likely to interpret the election as a step toward political stability, but uncertainties in Canada’s relationship with the U.S. will continue to influence the broader economic landscape.

 

 

Inflation, the Fed, and the Markets by Brian Westbury, Chief Economist, First Trust Canada Link to Article

Over the ten years before COVID, PCE inflation averaged about 1.5% per year, but the Federal Reserve, led by Jerome Powell, targeted an average of 2% inflation over time.  However, due to the Fed’s policies during the pandemic, inflation has exceeded both its short-term and long-term targets, with PCE inflation averaging 3.7% in the past five years.

Although the Fed views monetary policy as restrictive, inflation remains persistent, with core PCE prices up 2.8% in the past year.  Despite some expectations that inflation might subside, the Fed’s focus on short-term interest rates rather than broader money supply measures like M2, which is growing moderately, suggests inflation could remain high.

The rising fiscal deficit and declining Treasury General Account balances also contribute to an increasing money supply.  Reciprocal Tariffs could play a significant part in the inflation equation, depending on how long they are in place for, while political pressures are likely to push the Fed toward rate cuts and less quantitative tightening, which could exacerbate inflation.

Bond and gold markets are reacting to these concerns, with gold prices rising and treasury yields remaining high, signaling that markets are more focused on debt levels and inflation risks than on Fed policy.