MARKET UPDATE – May 19^th – May 30^th, 2025

In a Nutshell: Markets were choppy and sideways in the U.S., with modest growth in Canada as markets continue to grapple with noisy trade and tariff news, while mixed-to-weak economic data began to emerge in the U.S., UK, and Canada.  

Global Trade News

President Trump temporarily postponed a threatened 50% tariff hike on EU goods, extending the pause by another month to early-July.

While a U.S. federal court has struck down the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA) to justify broad tariffs, ruling that trade deficits and other cited issues do not meet the legal threshold of a “national emergency” a federal appeals court on Thursday reinstated Trump’s reciprocal tariffs, inviting both the plaintiffs and the administration to make their cases by June 5 and June 9, respectively. 

This would have nullified about $200 billion in tariffs on imports from Canada, China, and Mexico and marks a major legal setback for the administration’s tariff strategy.

U.S. Labour Markets

U.S. initial jobless claims rose sharply to 240,000 for the week ending May 19, exceeding both the previous week’s figure of 226,000 and the forecasted 229,000.  This 14,000 increase suggests potential softening in the labour market and poses a bearish signal for the U.S. dollar.  The jump follows a slight decline the previous week, when claims dipped to 227,000—better than expected at the time.

Outlook: While weekly fluctuations are common, the latest increase raises concerns about emerging cracks in labour market resilience.  Investors will watch future claims closely to determine if this signals a broader trend or temporary volatility.

 

U.S. Economy

The U.S. economy contracted by 0.2% in Q1 2025, a slight improvement from the initial 0.3% estimate, reflecting the drag from rising imports and reduced government spending amid ongoing trade tensions.

While consumer spending and investment offered some support, analysts noted weakening momentum heading into Q2.  Despite this soft patch, consumer confidence rebounded sharply in May, with the confidence index jumping, driven by improved expectations for jobs and income.  This optimism, bolstered by progress on U.S. - China trade talks, suggests that consumers remain a key pillar of economic resilience.

Meanwhile, U.S. business activity sent mixed signals.  The services Purchasing Manger’s Index (PMI) rose to 52.3, indicating growth in the sector, but durable goods orders dropped 6.3% in April, driven by a plunge in transportation orders.  

In Congress, controversial tax hikes on elite university endowments advanced, potentially curbing student aid and research.  

Bond yields surged amid concerns that Trump’s tax and spending plans could balloon the national debt by up to $5 trillion, sparking a selloff in stocks. These developments underscore growing fiscal and policy uncertainty, which could weigh on business investment and market sentiment.

Overall Outlook: The U.S. economy faces a fragile outlook, with consumer confidence rebounding but growth pressured by trade policy uncertainty, weak business investment, and rising government debt concerns.  Future momentum will depend on policy clarity and whether consumer strength can offset tightening financial conditions and volatile market sentiment.

 

Canadian Economy

Canada’s labour market showed further signs of strain in March, with employers cutting 54,100 payroll positions—the second straight monthly decline—led by losses in education, healthcare, hospitality, and retail.  

Despite job vacancy levels holding steady, vacancy rates remained below last year’s levels, while average weekly earnings rose, signaling tight but cautious hiring conditions amid economic uncertainty and tariff risks.

Retail sales, meanwhile, provided a silver lining, rising 0.8% in March and likely gaining again in April, driven by strong auto sales as consumers rushed purchases ahead of potential U.S. tariffs.  

Inflation data added complexity to the outlook: while headline inflation fell to 1.7% due to a carbon tax removal and lower energy prices, core inflation measures rose to multi-month highs, creating a dilemma for the Bank of Canada ahead of its June rate decision, with markets now assigning roughly 40% odds of a cut.

Outlook: Canada’s economy is showing mixed signals, with weakening labour markets and sticky core inflation complicating the Bank of Canada’s path forward.  While resilient consumer spending and retail sales offer some support, elevated core inflation may delay rate cuts despite growing downside risks to growth.

 

Eurozone and UK Economy

Core in flation in the UK inflation jumped to 3.5% in April, while grocery prices rose to 4.1% in May - the highest since February 2023.  Though grocery sales increased 4.4% year-over-year, rising prices—especially for chocolate, butter, and suncare—have pushed consumers to adjust spending habits.  

Meanwhile, retail confidence has deteriorated sharply, with the Confederation of British Industry’s (CBI) sentiment gauge falling to a five-year low, and retailers signaling weaker sales, reduced hiring, and higher prices.  This contrasts with stronger-than-expected April retail sales and rising consumer confidence, partly buoyed by sunny weather and the Bank of England’s recent rate cut.

Across Europe, economic signals are mixed.  Germany’s Q1 Gross Domestic Product (GDP) was revised up to 0.4%, lifted by pre-tariff export surges, though sustained growth is uncertain.  In contrast, France saw its lowest inflation since 2020 due to energy price declines, while Spain’s industrial price growth slowed on falling electricity and oil costs.   With ongoing U.S. - EU tariff tensions and mixed macro signals, the outlook remains fragile and geopolitically sensitive.

Outlook: Despite a short-term boost in retail activity and consumer confidence in the UK, and Germany’s better-than-expected Q1 growth, elevated core inflation and fragile business sentiment across Europe point to an uneven recovery.  Ongoing U.S. - EU trade tensions and sticky service prices may limit central banks' ability to ease policy aggressively in the near term.

 

Energy

The Envirometnal Impact Assessment (EIA) reported a sharp drop in crude oil inventories versus expectations of a an increase, signaling unexpectedly strong demand and supporting higher crude prices.

However, the American Petroleum Insitutre (API) report contradicted this by showing a surprise increase in total petroleum stocks, hinting at weaker overall demand.  

Meanwhile, natural gas storage rose, exceeding expectations and the prior figure, indicating subdued demand and likely downward pressure on gas prices.  These data points together suggest diverging trends within the energy market, reflecting complex supply-demand dynamics.

Outlook: Crude oil prices may trend higher in the near term due to tightening supply, but mixed signals from API data could temper gains.  Natural gas faces bearish pressure as inventories continue to build, reflecting weaker industrial demand and possible economic softening.

 

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	-0.4%	-2.6%	-2.5%	-2.5%	-0.9%	-1.5%	5.6%
This Week	1.1%	1.9%	1.6%	2.0%	0.6%	-1.2%	-1.6%

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

 

 

CIBC Economics: Services, baby, services by Ali Jaffery Link to Article

Canada’s economy is heavily driven by its service sector, which makes up over 70% of GDP and nearly 80% of jobs.  While recent focus has been on building infrastructure and resource projects, service exports—especially in IT, finance, and consulting—have quietly surged, growing 50% since 2015 and outperforming goods exports.

 

Canada has had the best service export growth in the G7 since 2015

 

As global trade shifts from goods to services, Canada has a key opportunity to lead, thanks to strengths in high-skilled sectors and more diversified trade partners.  To capitalize on this, Canada must prioritize regulatory alignment, skilled immigration, and foreign market access—because the future of growth lies not just in what we build, but in the services we provide.

 

 

 

RBC GAM Macro Memo – May 27^th – June 16^th by Eric Lascelles, Chief Economist Link to Article

 

Trade negotiations begin…

Over 100 countries are scrambling to negotiate tariff exemptions with the U.S. ahead of an early-July deadline, but progress is slow due to logistical challenges and the lack of clear U.S. demands.  Trump's tariff approach favors unilateral, hardline stances over traditional negotiations, making it difficult for trading partners to strike meaningful deals.

Countries like the EU, Japan, Taiwan, India, and Vietnam are pursuing various strategies—from policy concessions to symbolic gestures—to secure favorable treatment, though many face resistance or unclear outcomes.  

The EU’s efforts focus on mutual tariff and regulatory reductions, in addition to boosting U.S. purchases, but were reportedly poorly received by the White House.  Meanwhile, some nations are adopting a wait-and-see approach, betting that the U.S. bargaining position may erode if its economic momentum fades.

Outlook: With negotiations hampered by unclear U.S. objectives and centralized decision-making, a global tariff standoff is likely to persist through mid-2025.  As more countries weigh delay tactics or targeted concessions, trade uncertainty and supply chain recalibrations are expected to remain high.

 

 

Court Ruling on Trump Adminstration Tariffs

If courts block former President Trump from using the International Emergency Economic Powers Act (IEEPA) to impose tariffs, he has backup tools like Section 301 tariffs—already in place against China—and Section 122, which allows temporary tariffs for up to 150 days.  While Section 301 requires formal investigations into unfair trade practices, it could be used to impose broad tariffs on many trading partners by year-end.

Outlook: Protectionist U.S. trade policies are likely to advance regardless of legal setbacks, potentially disrupting global trade flows by late 2025.  Investors and businesses should prepare for elevated trade uncertainty and supply chain shifts.

Trump’s Tariff armory

Source: Bloomberg Economics, Congressional Research Service, RBC GAM

 

 

Tariff economic impact so far

The economic impact of tariffs is unfolding unevenly.  Anticipation of tariffs led to a front-loading surge in U.S. imports and consumer spending, particularly from China, while uncertainty has curbed business investment, new manufacturing orders, and home sales.

U.S. consumer goods imports surged ahead of tariffs

As of March 2025. Sources: U.S. Census Bureau, Macrobond, RBC GAM

 

Despite this, broader U.S. economic indicators remain relatively resilient, with some sectors like steel benefiting.  Looking ahead, logistics and transportation firms are bracing for slowdowns and potential layoffs, while global GDP forecasts continue to be revised downward.  Although a full-blown recession is unlikely, tariffs are expected to reduce U.S. economic growth by about 1.3 percentage points, with delayed consumer impacts likely appearing in mid-2025.

 

U.S. consensus growth forecasts have been revised lower in 2025 and 2026

Year in which Forecast was made

As of May 2025. Sources: Consensus Economics, RBC GAM

 

Tariff-driven price effects have yet to meaningfully show up in consumer inflation, with April’s CPI coming in lower than expected.  While some manufacturers report rising input costs and plan to pass them on soon, actual inflation signals remain muted for now.  Market-based inflation expectations are stable, and wage pressures are easing, suggesting any price increases may be modest and delayed.

Overall, while tariffs are disrupting trade and confidence, their broader inflationary and recessionary impacts appear more contained than initially feared.

 

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