MARKET UPDATE – April 21^st – May 2^nd, 2025

In a Nutshell: Markets saw strong recovery over the last two weeks as Washington and China hint at trade negotiations, corporate earnings, particularly from “Magnificent 7” companies showing strength, payrolls coming in better than expected and core inflation measures appear to be cooling.

U.S. Labour Markets: U.S. Job Openings Decline Amid Tariff Uncertainty, but Labor Market Holds Steady

U.S. job openings fell significantly in March to 7.19 million, missing expectations and signaling weaker labor demand, likely due to trade policy uncertainty. Hiring was flat, but layoffs dropped sharply, and jobless claims stayed steady over the past two weeks pointing to a still-stable labor market despite signs of cooling.

Outlook: U.S. labor demand is cooling as job openings decline, likely due to trade-related uncertainty, which may slow future hiring and spending. However, low layoffs and stable jobless claims show the labor market remains resilient. This points to a gradual economic slowdown rather than a sharp downturn, with the Federal Reserve watching closely for signs of instability Economists forecast 130,000 new jobs added in April (down from 228,000 in March), with unemployment expected to remain at 4.2%.

U.S. Economy: U.S. Economic Outlook Clouded by Mixed Signals Amid Tariff Tensions and Slowing Growth

Manufacturing Is Resilient: Factory activity picked up modestly (PMI 50.7), showing the sector is holding steady despite trade-related challenges. This suggests some strength in industrial output, which supports jobs and exports.

Services Are Slowing: The service sector, a key driver of U.S. GDP, is losing momentum (PMI down to 51.4). While still growing, the pace is weakening—raising concerns about broader economic softness.

Durable Goods Surge, But It’s Narrow: A spike in aircraft orders pushed durable goods orders up 9.2%, but outside of transportation, business investment looks weak. This implies companies are wary of expanding amid policy uncertainty, which could slow future growth.

GDP Contracts Unexpectedly: The economy shrank 0.3% in Q1, largely due to a spike in imports (which subtract from GDP) and lower government spending. This surprise downturn suggests the economy may be hitting a soft patch, and is vulnerable to policy shocks like tariffs.

Inflation Easing but Volatile: The Fed’s preferred inflation measure (PCE) fell to 2.3% annually in March, offering some relief. However, Q1 inflation rose to 3.5%, sparking fears of stagflation—a troubling mix of slow growth and high inflation.

Outlook: The data shows a slowing economy with pockets of strength. Manufacturing is holding up, but services and business investment are cooling. Falling inflation gives the Fed room to cut rates if needed, but the surprise GDP contraction and trade-related volatility raise the risk of a deeper slowdown. The next few months will be crucial in determining whether this is a soft patch or the start of a broader economic downturn.

Canadian Economy: Canada’s Election Outcome Signals Policy Pivot Amid Trade and Fiscal Uncertainty

Political Outcome Creates Fiscal Uncertainty: The Liberal Party, under new PM Mark Carney, won a minority government, meaning they’ll likely need support from other parties (NDP or Bloc Québécois) to govern. This increases the chances of higher public spending due to coalition compromises, which could push budget deficits higher.

Consumer and Business Caution Evident: Retail sales dropped 0.4% and wholesale trade likely declined 0.3%, pointing to weaker demand. This suggests that households and firms are pulling back, likely due to economic uncertainty from tariffs and slowing growth.

Outlook: This points to a slowing Canadian economy facing multiple headwinds: political uncertainty, weaker domestic demand, and external trade pressures. If rate cuts materialize, they may help stabilize growth—but could also weaken the Canadian dollar and inflate asset prices. The fiscal path ahead will depend heavily on how stable the minority government proves to be and how much stimulus it pursues.

Eurozone and UK Economy: UK and Eurozone Economies Struggle Amid Trade Pressures and Weakening Demand

UK Growth Contracts Sharply: The UK’s composite PMI fell to 48.2, signaling broad economic contraction, led by declines in both services and manufacturing. While price growth may slow, the downturn likely pushes the Bank of England to continue cutting rates to stimulate activity.

Eurozone Struggles with Stagnation: The eurozone PMI barely stayed in growth territory (50.1), with services dipping into contraction and manufacturing still shrinking. Export weakness and rising costs are dampening momentum. This reflects an economy stuck in low gear, which may prompt more accommodative ECB policy.

Spain Outperforms Peers Despite Q1 Slowdown: Spanish GDP grew 0.6% in Q1, down slightly from 0.7%, but remains stronger than Italy, France, and Germany. Investment and labor market strength helped offset slower consumption and government spending. Annual growth hit 2.8%, though unemployment edged up to 10.36%.

Inflation Slows, Rate Cuts More Likely: Eurozone inflation dropped to 2.2%, near the ECB’s target. Combined with weak growth, this gives the central bank more flexibility to cut interest rates, supporting credit and investment.

Trade Still a Bright Spot, But Risks Loom: EU exports to the U.S. surged 22.4%, boosting the trade balance. However, rising U.S. tariff threats could quickly reverse these gains, creating further risk to already fragile European growth.

Outlook: The UK and eurozone are both at risk of stagnation or mild recession, especially as consumer demand softens and global trade tensions rise. Central banks may shift toward more rate cuts to support growth, particularly if inflation continues to ease. Spain remains a relative bright spot, but broad-based weakness in Europe’s largest economies raises concerns about a prolonged period of low growth, with external trade and monetary easing doing the heavy lifting.

 

 

 

Energy: U.S. Energy Inventory Data Sends Mixed Signals on Oil and Gas Demand

Oil Inventory Swings Raise Demand Concerns: After a smaller-than-expected build the prior week, U.S. crude inventories surged by 3.76 million barrels in the latest data, well above forecasts. This sudden rise could signal weaker demand or rising supply, which may weigh on oil prices and reflect softening economic activity.

Natural Gas Oversupply Builds: Storage increased by 88 billion cubic feet, far exceeding expectations and prior levels. This suggests oversupply and weaker demand, potentially putting downward pressure on natural gas prices.

Outlook: These energy inventory trends point to cooling industrial or consumer demand, possibly linked to broader economic slowing. Lower energy prices could ease inflation, but the underlying cause—weaker demand—may also signal softer economic momentum ahead.

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	2.1%	4.6%	2.5%	6.7%	3.0%	-1.1%	FLAT
This Week	1.3%	2.9%	3.0%	3.4%	3.1%	-7.6%	-2.4%

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

 

 

 

CIBC Economics: Quick Take:  US GDP (Q1) by Ali Jaffery (summarized by WQH Group)

GDP Contracts Slightly in Q1: The U.S. economy shrank by 0.3% annualized in Q1 2025, slightly worse than the -0.2% consensus forecast and down sharply from the 2.4% gain in Q4. The contraction was primarily due to a surge in imports, driven by front-loading ahead of expected tariffs.

Final Domestic Demand Slows: Final sales to domestic purchasers rose 2.3%, down from the recent 3% average. Consumer spending growth slowed to 1.8%, from 4% in Q4, though still stronger than the 1.2% expected. Business investment rebounded by 9.8%, while government spending fell 1.5%, largely due to federal cutbacks.

Outlook: While Q1 growth slowed, the Fed is expected to stay cautious. Elevated inflation and rising trade tensions may weigh further on hiring and investment in Q2. Policymakers will wait to assess the full economic impact of tariffs before adjusting rates.

 

CIBC Economics: Canadian GDP – Trying to weather the storm by Andrew Grantham Link to article

February GDP Contracts Unexpectedly: Canada’s GDP declined by 0.2% in February, underperforming expectations for a flat reading. The drop followed a strong 0.4% gain in January and was largely attributed to severe winter weather affecting mining, oil & gas, transportation, and real estate.

Tariff-Exposed Sectors Show Temporary Strength: Despite looming U.S. tariffs, manufacturing and wholesaling posted gains for a second straight month—likely reflecting front-loading activity before tariff implementation. However, advance data suggest both sectors weakened in March.

Q1 Growth Tracking Below BoC Forecast: Preliminary March data point to a modest 0.1% GDP increase, bringing Q1 growth to an estimated 1.5% annualized—just below the Bank of Canada’s 1.8% projection. Much of Q1 strength stemmed from early-year inventory buildup ahead of tariffs, with momentum fading by quarter’s end.

Outlook and Policy Implications: With new tariffs now in place and Q2 momentum weakening, CIBC expects a modest GDP contraction in Q2. This supports a 25bp rate cut at the Bank of Canada's June meeting, aligning with its downside scenario. Markets responded to the data with a slight drop in bond yields and the Canadian dollar.

 

 

RBC GAM Macro Memo – April 30 - May 27, 2025 by Eric Lascelles Chief Economist Link to article

Tariff Trends Shift Toward Moderation: While initial moves in 2025 pointed to escalating trade tensions, recent developments suggest a partial retreat. The U.S. delayed many reciprocal tariffs by 90 days and signaled potential carveouts for sensitive sectors like autos and electronics. However, tariffs on Chinese imports have surged to as high as 245%, with China responding in kind. Still, White House rhetoric implies a softening stance, likely due to rising economic and market costs.

China's Strategic Advantage: Despite exporting more to the U.S. than vice versa, China may be better positioned in the trade war. The U.S. relies heavily on China for critical goods like electronics and industrial components, while China’s economy is less exposed to U.S. trade. China's dominance in rare earths, its long-term planning capacity, and willingness to endure economic pain reinforce its relative strength.

China’s GDP has low exposure to U.S. through global trade

Lagged Economic Impact and Front-Loading: Many tariffs haven’t taken full effect, but their economic drag is already underway. Businesses have stockpiled inventory and pulled forward imports (especially in autos and consumer goods), which will boost near-term activity but depress demand later. For example, U.S. imports of consumer goods surged 25% YoY in February. Inflation may remain subdued until these inventories are depleted.

 

 

U.S. consumer goods imports surged ahead of tariffs

Negotiation Complexity and Global Implications: With over 180 nations impacted, trade negotiations are complex and slow-moving. Countries like Vietnam may serve as bellwethers, showing how smaller, trade-dependent nations balance between U.S. and Chinese spheres of influence. Delays or failures in negotiation could lead to renewed tariff waves in July.

Recession and Inflation Risk Assessment: RBC GAM maintains a base-case assumption of moderated but persistent tariffs—50% on China and 10–15% on others. This scenario does not guarantee a recession but raises U.S. recession odds to 40%. Tariffs may inflict outsized economic pain per unit due to non-linear effects like uncertainty, boycotts, and supply chain disruptions. Corporate earnings are especially vulnerable, with a projected 2–12 percentage point drag.

Inflation Outlook Diverges: Tariffs are inflationary for the U.S., with daily price trackers already flashing higher consumer prices. However, ex-U.S. inflation impacts are expected to be more muted due to limited retaliation, weaker global demand, and potential dumping of excess goods. Some inflationary offset may occur from shortages of U.S. exports in global markets.

Policy Outlook: The administration may pivot from sweeping tariffs to pressuring corporations for onshoring commitments. This would provide more politically visible wins ahead of the next election cycle. While large tariffs remain a risk, the trend toward moderation and corporate negotiations could shape a more balanced but still uncertain global trade environment.

 

Canada’s 2025 Election Delivers Liberal Minority Amid Shifting Policy Priorities

Fourth Liberal Win, But Another Minority: The Liberal Party, led by Mark Carney, has secured a fourth consecutive election victory and a third straight minority government. While expectations briefly leaned toward a possible majority, underperformance in suburban Ontario sealed the minority outcome. The Canadian dollar was largely unchanged, reflecting the anticipated result.

Weakened Opposition, Uncertain Governance: The Conservatives gained seats but lost momentum after leading early in the year. The NDP and Bloc Québécois saw losses, indirectly aiding the Liberals. Still, the resulting government may be less stable than in previous terms. The Liberals and NDP only narrowly surpass the 172-seat majority threshold, and ideological gaps between the parties may complicate cooperation. Future instability is likely if the NDP regains strength or leadership changes unfold in opposition ranks.

New Prime Minister, New Policy Tone: Carney’s leadership marks a pivot from the Trudeau era’s social and environmental focus toward centrist, pro-growth policies. Both major parties ran on similar economic agendas, including tax cuts, deregulation, increased infrastructure and defense spending, reduced immigration, and aggressive trade policy with the U.S.

Economic Agenda Highlights:

• Tax Policy: Modest tax cuts, including cancelling a capital gains hike and lowering the lowest tax bracket.
• Carbon Policy: Consumer-facing carbon taxes to be removed, while industrial carbon pricing remains.
• Housing: Major pledges to increase homebuilding, though doubling construction rates is seen as unlikely.
• Infrastructure: High-speed rail (Windsor–Quebec City), Arctic port development, and energy project streamlining.
• Deficits: Continued deficit spending, with a reframe separating operating and capital budgets—still economically stimulative, though fiscally loose.

Fiscal Implications: With over C$90B in planned spending across tax cuts, defense, housing, and infrastructure—and the likelihood of additional social outlays to secure NDP support—Canada’s fiscal stance will remain expansionary. Both major parties had unrealistic savings assumptions, raising questions about long-term sustainability.

Outlook: While the near-term policy direction emphasizes growth and investment, minority status and trade risks pose challenges. Tariff decisions in Washington may ultimately shape Canada’s economic trajectory more than Ottawa’s fiscal plans.