MARKET UPDATE – May 5^th – May 16^th, 2025

In a Nutshell: Markets rallied this week as the U.S. and China agreed to pause their reciprocal tariffs, providing breathing room for a negotiated deal.  The trade truce was a positive offset to some soft economic data globally, while Germany showed some signs of growth, and Energy demand remained stable.

U.S. – China Trade Truce

Global markets rallied after the U.S. and China agreed to a 90-day tariff truce, easing fears of a global recession.  The U.S. cut tariffs on Chinese goods from 145% to 30%, and China reduced its own from 125% to 10%.

While the pause boosted investor confidence, it did not resolve key disputes—including trade imbalances, industrial subsidies, and the U.S. fentanyl crisis.  Businesses welcomed the relief but remained cautious due to continued uncertainty.  Many existing tariffs—especially on EVs and solar products—remain in place.

 

U.S. Labour markets steady

Initial Jobless Claims in the U.S. held steady, matching forecasts and remaining within the year’s typical range of 205K–243K.  While stability in claims is a bullish signal for the U.S. dollar, economic uncertainty—partly due to ongoing tariff fluctuations—has made companies more cautious about hiring. Continuing claims rose slightly to 1.881 million, and the median duration of unemployment increased to 10.4 weeks in April.  Economists, including Goldman Sachs, trimmed their unemployment forecasts slightly, with expectations now for a 4.5% rate by year-end, down from 4.7%.

Overall, jobless claims data signals labour market stability, but persistent economic uncertainty continues to weigh on hiring and growth outlooks.

 

FED remains on pause

Federal Reserve held rates at 4.25%–4.5%, citing rising risks of inflation and unemployment.  The Fed remains cautious due to trade policy uncertainty and tariff impacts.

Business inventories, industrial production and wholesale inventories underwhelmed investors, as well as a large trade deficit all contributing to the negative Gross Domestic Product (GDP) growth seen in Q1.   The services industry was the only shining light by showing modest expansion in April.

Tariff-related volatility continues to cloud U.S. economic prospects.  The Fed is likely to stay on hold, watching inflation, labour trends, and trade negotiations.

 

Canadian job market softens and economy contracts

Canada’s unemployment Rate rose to 6.9%, with only 7,400 net new jobs added—signaling a stagnant labour market, with gains largely due to election-related hiring.

Broad Economic Activity Fell to 47.9 from 51.3, marking the weakest reading since January with the services sector contracting for a fifth straight month.  

Political and trade-related uncertainty, combined with weakening job and services data, point to mounting recession risks.  Pressure is building on the Bank of Canada (BoC) to lower interest rates further.

 

UK struggles while green shoots emerge in the Eurozone

UK Q1 GDP rose 0.7% in Q1 above expectations but only slightly higher than Q4 2024.  Annual growth slowed to 1.3%, down from 1.5%.  Despite this, Service and Manufacturing activity contracted with Services contracting for the first time since October 2023 and worst pace in 2 years.

Eurozone Q1 GDP grew 0.3% below expectations but stronger than Q4 2024.  Germany and Spain’s inflation in April fell slightly to 2.2%.

Eurozone economic activity continued to expand only slightly, though services economic expansion stalled while business confidence fell to a 17-month low.  However, industrial production surged, with orders in Germany showing the greatest jump, likely as a result of exports being pulled forward ahead of tariffs.

The UK shows short-term GDP strength, but forward indicators are weakening.  The Eurozone is seeing early signs of industrial recovery, though services are stagnating and inflation trends are mixed.  Trade tensions continue to be major headwind for both regions, potentially impacting monetary policy and economic momentum in the second half of 2025.

The European Union (EU) published a draft list of U.S. imports (worth €95B) for potential retaliatory tariffs if trade talks fail.  U.S. tariffs continue to cloud the outlook for German and EU industry, though a short-term lift came from pre-tariff demand.

Talks in Geneva between top U.S. and Chinese officials were called constructive, but tariffs continue to cloud the outlook for German and EU industry, though a short-term lift came from pre-tariff demand.

 

Consistent demand increase for Energy

Natural Gas Storage was slightly below forecast, indicating stronger-than-expected demand, which is bullish for natural gas prices.  The modest week-over-week increase suggests steady demand and a stable energy outlook.

Crude Oil Inventories saw a larger-than-expected drawdown suggests robust crude oil demand.  Although the draw is smaller than the previous week, it remains a positive signal for prices and indicates tight supply conditions.

Consistent above-forecast inventory drawdowns across EIA and API data reflect resilient demand for both natural gas and oil.  These trends suggest potential upward pressure on energy prices, benefiting producers but possibly contributing to inflationary risks.

 

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	1.3%	-0.5%	-0.2%	-0.3%	-0.4%	4.7%	3.1%
This Week	2.4%	5.3%	3.4%	7.2%	1.9%	2.3%	-4.2%

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

 

 

 

Trump administration to rescind and replace Biden-era global AI chip export curbs by Karen Freifeld and Arsheeya Bajwa, Reuters Link to Article

The Trump administration plans to rescind and revise a Biden-era rule that restricted exports of advanced AI chips to prevent China and other adversaries from accessing powerful computing technologies.

• The Biden rule, set to take effect May 15, was designed to preserve U.S. leadership in AI and limit potential military applications in China, Russia, Iran, and North Korea
• It divided countries into tiers, with full access for key allies (Tier 1), capped access for others (Tier 2), and full restrictions for adversaries (Tier 3)
• The Trump administration criticizes the rule as too complex and bureaucratic, arguing it stifles U.S. innovation
• Officials are considering replacing the tiered system with a simpler global licensing regime based on government-to-government agreements
• No implementation timeline has been announced yet, as discussions continue

Market Reaction: Major AI processor manufacturing companies are set to expect increased export opportunities on the back of this reform, however, with no timelines in place as yet, the direct benefits to the manufacturers still remains uncertain.

 

 

CIBC Economics: Time to hedge one’s bets? by Avery Shenfeld Link to Article

Canadian investors, particularly pension funds with liabilities in Canadian dollars, have long benefited from international diversification, especially through U.S. assets.  However, currency risk complicates this strategy.  Historically, many Canadian investors have maintained low hedge ratios on U.S. assets, benefiting from the Canadian dollar’s consistent weakening and the U.S. dollar’s typical strength during risk-off periods.  This dynamic has provided a “natural hedge” for Canadian investors—when U.S. equities fell, the rising U.S. dollar often cushioned losses.  Yet, recent developments suggest that this protective relationship may be weakening.

The U.S. dollar has shown signs of entering a long-term mean-reversion phase after years of dominance, with recent trade-weighted valuations reaching levels not seen since previous major downturns in the early 2000s and mid-1980s.  America's ballooning trade deficit and growing unease among global central banks about excessive USD exposure add to the uncertainty.  Although past data show that the U.S. dollar and U.S. stocks moved in opposite directions 65% of the time for Canadian investors, there have been several significant periods—around 7% of the sample—when both fell together, exposing investors to compounded losses.

Rather than the natural hedge, investors could explore lower-cost strategies to hedge against further U.S. dollar declines, particularly those heavily exposed to U.S. assets.

 

 

4 scenarios for uncertain markets by Tom Cooney, Jared Franz, Jayme Colosimo, & Jody Jonnson, Capital Group Link to article

President Trump’s sweeping tariffs introduced in April 2025 caused significant economic uncertainty across the globe, as well as business sentiment, and investor confidence.  As uncertainty around global trade policy escalates, markets have become increasingly volatile, reflecting investor concern over a possible economic slowdown and the erosion of the post–World War II rules-based global trade order.

In response to this instability, Capital Group developed scenario-based frameworks to help navigate the unpredictable future.  Rather than making precise forecasts, they model a range of potential geopolitical outcomes—ranging from a return to strong alliances and broad trade deals (“grand bargains”) to worst-case scenarios like widespread trade wars and military confrontations (“assertive nationalism”).

 

Geopolitical realignment: Potential outcomes and investment implications

 

Capital Group’s base case is that a return to stability is unlikely.  While tariff pauses are in effect, negotiating new trade deals—especially with major economies like China, the EU, and Canada—will take years, particularly given the limited capacity of the U.S. Trade Representative’s office.  In the meantime, small deals with Japan and South Korea may offer temporary relief, but the lack of comprehensive agreements and ongoing brinksmanship could sustain market volatility and dampen corporate investment. Over time, prolonged uncertainty could even erode global trust in the U.S. as a trade partner and in the dollar as a reserve currency.

For investors, the recommendation is to remain flexible, avoid overcommitting to a single worldview, and maintain a balance between defensive and opportunistic positions.  Capital Group advocate focusing on resilient businesses less exposed to trade flows—like domestic insurers or market infrastructure firms—as well as global diversification to manage geopolitical risk. While we may currently be in a period of peak uncertainty, a clearer investment landscape could emerge once trade negotiations progress and policy direction become more predictable.