Weekly commentary – For the week ended April11

Global equity markets saw wide swings as reciprocal tariffs went into effect and were quickly paused. Trade tensions between the U.S. and China, the world’s two largest economies, escalated, putting the health of the global economy into question. Still, global equity markets finished higher. In Canada, the S&P/TSX Composite Index posted a gain, led by the Materials sector. U.S. equities finished higher. Yields on 10-year government bonds in Canada and the U.S. increased. The price of oil declined, while the price of gold rose.

Higher reciprocal tariffs paused for 90 days

• On Wednesday, broad reciprocal tariffs from the U.S. went into effect, spooking investors who were concerned that these tariffs would send the global economy into a recession.
• However, U.S. President Donald Trump announced he would pause higher reciprocal tariffs for 90 days, raising hopes that trade disruptions could be avoided. President Trump appeared willing to work out a deal with these other countries.
• This boosted investor sentiment. On Wednesday, Canadian equities rose over 5% on the day. U.S. equities also posted outsized gains on the day at levels not seen since 2020.
• The European Union subsequently paused its retaliatory tariffs on the U.S. for the same 90-day period. This could open the door for the two economic powerhouses to avoid a trade war.
• The world’s second-largest economy, China, didn’t budge. China increased its tariffs on U.S. imports to 84%. The U.S. responded by raising its tariff on Chinese goods to 125%. On Friday, China raised tariffs again to 125%. A trade battle between these two economic heavyweights could have a negative impact on the global economy.

Bank of Canada survey highlights strained sentiment

• The Bank of Canada (“BoC”) released its first-quarter Business Outlook Survey last week. The survey found that consumer and business sentiment has weakened amid concerns that tariffs will have a negative impact on Canadian economic activity.
• Businesses see sales growth stalling this year. Many businesses count the U.S. as a major customer. Trade tensions and higher costs, due to tariffs, could weigh on sales.
• With expectations for slower sales growth, businesses might have to be a bit more cautious with their balance sheets. As a result, many businesses have halted their plans for capital expenditures and hiring.
• Consumers, meanwhile, have expressed concerns about their job security. If tariffs weaken economic activity, Canada’s labour market could slow. This is happening in real time. Unifor recently said approximately 6,000 of its members received temporary lay-off notices from automakers.
• The BoC makes its next interest rate announcement on April 16. The impact of tariffs will significantly affect its decision. Canadian lawmakers will be talking trade with President Trump after the federal election, hoping an agreement can be reached to remove the additional tariffs.

U.S. inflation slows before tariffs

• The U.S. annual inflation rate declined to 2.4% in March from 2.8% in the previous month, reaching its lowest rate of inflation since September of last year.
• The slowdown was driven by a drop in energy prices. Gasoline prices fell sharply, as did the price of fuel oils. However, food inflation picked up in March.
• On a monthly basis, consumer prices declined by 0.1% in March, which was the first decline since May 2020.
• Core inflation also declined but remained elevated. In its meeting minutes, the U.S. Federal Reserve Board (“Fed”) cited persistently high core inflation as a concern. Tariffs could add to those pressures.
• The Fed is in an interesting position. The U.S. central bank is likely to hold steady in the coming months, with inflation persisting at elevated levels. However, trade disputes could slow economic growth. Fed officials seem poised to carefully monitor incoming data ahead of any monetary policy decisions.

U.K.’s economy expands

• Gross domestic product in the U.K. expanded by 0.5% in February, which was the fastest pace of monthly growth since March 2024.
• A rise in manufacturing output drove February’s increase. Services sector activity also improved, helping to lift overall growth.
• Industrial production rose by 1.5% in February, marking its quickest rate of growth since June 2023. Production increased in part due to U.S. purchasers frontloading orders ahead of tariffs. The amount of goods exported to the U.S. in February was the highest since 2022.
• While the economy benefited from U.S. purchasers frontloading orders, the economy could eventually be weighed down by those tariffs.
• The Bank of England (“BoE”) makes its next interest rate decision on May 8. The BoE held its policy interest rate steady at 4.50% at its last meeting. Inflation has ticked higher, but uncertainty in the global economy amid trade tensions could leave the U.K. economy needing some additional support.

Market performance – as at April11,2025

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