MARKET UPDATE – April 7^th – April 18^th, 2025

In a Nutshell: Another highly volatile two weeks for the markets as constantly evolving news surrounding Tariffs caused choppy markets.  Chips stocks were hit late this week with new licensing requirements for trade with China.  Despite turbulent markets, markets saw some recovery after the post ‘Liberation Day’ sell-off.

U.S. Labour Markets

Jobless claims came in at 223K last week, exactly matching forecasts.  This is a slight increase from the prior week (219K), indicating a mild uptick in unemployment however this week initial jobless claims fell to 215K, beating expectations (225K) and the previous week’s figure (224K).  This is a positive sign, suggesting a stronger labour market and increased economic activity.

While claims ticked up slightly in late March, the early April drop to 215K suggests renewed strength in the labour market.  Overall, the data points to a resilient and stable U.S. economy, supporting the U.S. dollar.

 

U.S. Economy

Inflation Cools, But :Likely Temporary While Retail Sales Surge Ahead of Tariffs: Consumer prices rose 2.4% year-over-year in March, down from 2.8% in February, as falling gasoline prices helped offset gains in food and utilities.  On a monthly basis, prices declined by 0.1%—the first such drop in nearly five years. implementation of Trump’s steep reciprocal tariffs.  U.S. retail sales however rose by 1.4% in March, surpassing economist expectations, as consumers likely rushed to make purchases before President Trump’s new tariffs took effect in early April.  Notable gains in motor vehicle and parts dealers (up 8.8%) and non-store retailers (up 4.8%).

Business Inventories Lag Behind Expectations While Consumer Sentiment Takes a Sharp Hit: Despite robust consumer activity, U.S. business inventories rose just 0.2% in February, slightly below the forecasted 0.3% and matching January’s pace.  This slowdown suggests businesses may be facing challenges in restocking or responding to softening demand, possibly due to economic uncertainty and pre-emptive consumer buying ahead of expected price hikes from tariffs.  The University of Michigan’s Consumer Sentiment Index plummeted in April to 50.8 from 57.0 in March, marking the lowest level since 1981.  The drop was broad-based, spanning all demographics and regions with the deterioration likely tied to escalating trade tensions and growing pessimism about future economic conditions.

Federal Budget Deficit Narrows, Tariff Revenue Rises: The U.S. budget deficit fell to $161 billion in March, a 32% decrease from the previous year, largely due to calendar-related shifts in benefit payments. Customs duties brought in $8.2 billion—the highest since September 2022—bolstered by Trump’s recent tariff hikes.  However, claims of collecting $2 billion daily from tariffs are overstated, as actual increases have been far more modest.

Overall Outlook: Despite a strong March in retail sales and signs of recovery in manufacturing, broader economic data presents a mixed picture.  Consumer sentiment is falling, credit is contracting, and inflation may rise again due to tariffs.  Combined with slowing inventory growth and heightened trade tensions, these factors point to growing uncertainty and potential challenges for the U.S. economy in the coming months.

 

Canadian Economy

Bank of Canada (BoC) Holds Interest Rate Steady: The Bank of Canada has paused its series of rate cuts, keeping its overnight interest rate at 2.75% after seven consecutive reductions since June of last year. Governor Tiff Macklem emphasized that the decision was driven primarily by uncertainty around U.S. import tariffs, which pose risks to Canada’s economy.  Ongoing shifts in U.S. trade policy are prompting the central bank to adopt a wait-and-see approach.

Core Inflation Still Elevated: Despite the headline drop, core inflation—which is closely monitored by the Bank of Canada (BoC)—remained sticky and above expectations. Median Consumer Price Index (CPI) held steady at 2.9%, while Core CPI came in at 2.8%, both above analysts’ expectations of 2.6%.  These figures suggest underlying inflation pressures are still persistent, tempering optimism for immediate rate cuts.

Labour Market Weakens Sharply: Canada’s job market showed signs of strain in March with employment falling by 33,000 jobs, versus an expected gain of 10,000 jobs. Unemployment rose to 6.7%, its highest level in over a year.  Economists attributed the decline to growing uncertainty around tariffs, with some calling it the weakest labour report in years.

Auto Tariffs Hit Vehicle Sales: Canada’s new vehicle sales fell 8.1% in February 2025 compared to the prior year, largely due to Trump’s auto tariffs, which took effect in March.  The auto industry has been among the hardest hit by the ongoing trade tensions.

Outlook: Trade Tensions Cloud Economic Picture - While inflation eased, underlying indicators remain conflicted with core inflation is still above target, a softening Labour market, the potential for Tariffs and trade disruptions to increase costs and slow growth.  Economists expect rate cuts later in the year, but April’s decision is likely to be a hold.

 

Eurozone and UK Economy

Consumer Spending Rises in the UK: Consumer spending in the UK rose 4.4% YoY in the 4 weeks leading up to April 4, with growth being led by discretionary spending, particularly online.  The strongest sectors were Digital Content, Other Retail, and Travel.

UK Labour Market Steady but Weakening: Unemployment held steady in the UK at 4.4% in February, aligning with expectations while wage growth rose to 5.9% YoY, slightly above January's 5.8%. Despite stable jobless rates, data shows that payrolls and job vacancies are falling and redundancies increased.  It is apparent that the job market in the UK is not keeping pace with its population growth.

Eurozone Inflation Trends: Eurozone inflation eased to 2.2% in March, down from 2.3% in February. Lowest inflation recorded across the 20 country bloc were France (0.9%), Denmark (1.4%), and Luxembourg (1.5%).  Italy’s also inflation rose to 1.9% in March, from 1.6%.

German Export Shifts & Tariff Impacts: In 2024, Germany’s exports to the U.S. hit a record, overtaking China as the top trading partner. New U.S. tariffs are creating major uncertainty for Germany’s export-reliant economy. Growth forecast cut to 0.1% for 2025 (from 0.8%).

Energy

U.S. Sanctions on Iran: The U.S. Treasury has announced new sanctions targeting Iran's oil exports, specifically cracking down on companies and vessels—like a China-based "teapot refinery"—involved in Iran's clandestine oil trade with China.  These sanctions are part of former President Trump's "maximum pressure" campaign aimed at cutting Iran’s oil exports to zero and come amid renewed nuclear talks with Iran.

The U.S. also updated guidance for the maritime industry to detect sanctions evasion, citing Iran’s oil revenues as a funding source for terrorism.  This marks the sixth round of such sanctions since the campaign's reintroduction.  The U.S. State Department reaffirmed strict enforcement of all measures.

Meanwhile, the Energy Information Administration (EIA) reported mixed signals in oil inventory data with a recent increase of 0.515 million barrels, slightly above the 0.400 million forecasts, suggesting weaker-than-expected demand.  This however was a sharp drop from the prior week's 2.553 million barrels, and far below the 6.165 million rise the week before that—signaling potentially stronger demand and bullish pressure on crude prices.

Overall, the market is watching these shifts closely, as oil inventory levels directly affect prices and inflation trends.

 

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%	-2.3%	-3.1%	-2.4%	-1.3%	0.2%	3.0%
This Week	1.7%	0.5%	1.2%	0.2%	1.1%	1.7%	0.9%

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

 

CIBC Economics ECONOMIC FLASH!  Bank of Canada: holding its fire, but worried by Avery Shenfeld Link to Article

The Bank of Canada kept its policy rate steady at 2.75%, pausing its prior easing path due to high uncertainty in the economic outlook—especially around evolving U.S. trade policies.  Instead of offering a single forecast, the Bank’s Monetary Policy Report presented two scenarios: one featuring a severe downturn from high tariffs, and another with a mild stall in growth.  Despite differences in growth outcomes, both scenarios show inflation averaging near 2%.

The Bank acknowledged the lack of clear data and opted to wait for more clarity, rather than act preemptively.  It left the neutral rate estimate unchanged at 2.75% (range: 2.25%–3.25%).

Although current inflation is easing and Q1 growth has slowed modestly, the Bank did not see enough justification for a cut based solely on current data.  However, analysts argue that being more forward-looking would have supported a rate cut, given signs of weaker business confidence, stalled employment, and potential Q2 GDP contraction.

If upcoming data confirms economic weakening, a rate cut in June is likely, possibly followed by another in July. The article suggests a quarter-point cut in June, with the potential for a 50 basis point total reduction over the next two meetings. Ultimately, the policy rate could bottom out at 2.25%, assuming progress in U.S.-Canada trade talks.

Market Reaction was muted, with bond yields barely moving and the Canadian dollar seeing a small gain, as investors still expect further easing ahead.

 

RBC GAM Macro Memo – April 8^th – 29^th by Eric Lascelles Chief Economist Link to Article

Canadian election approaches

With the April 28 Canadian election approaching, recent polls show the Liberal Party, led by Mark Carney, pulling ahead of both the NDP and Conservatives.  Betting market Polymarket gives the Liberals a 73% chance of forming the next government, compared to 27% for the Conservatives under Pierre Poilievre—though the race isn’t over yet.

From a policy standpoint, both major parties support economic growth and productivity through different approaches:

• Conservatives have added New tax cuts for households investing domestically and policies aligned with energy sector investment priorities.
• Liberals have proposed a major boost in affordable housing construction, including a new government agency to lead building efforts.

While both platforms aim to stimulate growth, analysts suggest the Conservative platform may be slightly more growth-friendly, though execution will be key to success.

 

 

Thinking about market timing? by Mike Smith, Russell Investments Link to Article

Should Investors Move to Cash? History Says "Probably Not"

• Market timing is notoriously difficult, and usually not a winning strategy for most investors.
• Historical data shows that balanced portfolios rarely stay negative for long and often rebound strongly after downturns.

Why Staying Invested Matters: Over the past 45 years, a 60/40 equity-bond portfolio was positive 84% of the time, a return of 10% or more 60% of the time and only seven negative years.  Even in severe downturns like 2008 and 2022, strong rebounds followed.   Most downturns last less than 12 months, making it tough to time exits and re-entries successfully.

Index portfolio of 40% Russell 3000 Index, 20% MSCI EAFE Index, and 40% Bloomberg US Gov/Corporate Bond Index. Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.

False “Sell” Signals: COVID-19 (2020): Many exited the market during the crash, missing the 45% rally later that year. Lehman Brothers collapse (2008): Those who bailed missed gains during the recovery in 2009.  Inverted yield curves: Often viewed as recession signals, but historical data shows positive returns frequently follow, especially for diversified portfolios.

Bottom Line: Market volatility can stir anxiety, but history shows that staying invested usually wins out. Moving to cash may feel safe, but often leads to missed recoveries and weaker long-term returns.