Despite the rhetoric and headlines over the past 10 days, markets have surprisingly ended up close to where they started this time last week. The biggest winner has been bonds where yields (especially here in Canada) have fallen sharply. Gold has also shone and is up over 10% (in USD terms) from its recent lows in December.
| Index | Close Jan. 30th 2025 | Close Feb. 6th 2025 |
| S&P500 | 6,071 | 6,075 |
| TSX60 | 25,808 | 25,522 |
| Canada 10 yr. Bond Yield | 3.12% | 2.98% |
| US 10 yr. Treasury Yield | 4.52% | 4.44% |
| USD/CAD | $1.44845 | $1.43175 |
| Brent Crude | $75.89 | $74.25 |
| Gold | $2,796 | $2,856 |
| Bitcoin | $105,009 | $96,798 |
Source: Trading Economics & Factset
The big story this week has been the threatened US tariffs on Canada, Mexico, and China. While Canada and Mexico both got a 30 day stay of execution, China faces and immediate 10% tariff on all goods on top of already existing tariffs. The Wall Street Journal, usually a reliable ally of Donald Trump, call this “The dumbest trade war ever”.
Despite getting a 30-day reprieve, the long-term ramifications for Canada are substantial. Some are good and needed, others are detrimental. The most obvious is the downside of a potentially permanent impairment of the relationship with our closest neighbour and erstwhile ally. Trust and reputation take years to build, and both can be lost in a moment. If the tariffs are imposed after 30-days, the economic consequences will be negative with higher prices and job losses on both sides of the border.
There is an upside to this. Canada, as a nation, is now more unified than it has been in years. It is amazing what an external threat can do to changes people’s attitudes. From an economic perspective it has spurred action on several initiatives that have languished for decades. Inter-provincial trade barriers have been debated for as long as I can remember. All stakeholders are now committed to eliminating them. The IMF calculates the elimination of internal trade barriers could lift GDP per capita by 4% or $2,900 per capita. Minister Anita Anand says it is possible to eliminate many of the barriers in 30 days.
Pipelines are back in the mix. Northern Gateway, which died in 2014 would provide another access to tidewater for Canadian Crude. Energy East is also being talked about again but would likely transport natural gas. Previous proposals for Energy East died as there were not enough producers willing to ship through it. The proponent (TransCanada) decided that KeystoneXL made a better business case. Ironically that was kiboshed by the Biden administration.
There is much more being proposed and debated from tax reform to regulatory overhaul, to the aggressive pursuit of new trading partners. The question remains, do we have the will to make the hard choices, and will the private sector step up to take advantage of any changes? Government is not the economy and can only set the table. It is up to the private sector to fill the restaurant with happy customers.
Tariffs were not the only event to roil the markets since my last report. China’s AI startup DeepSeek caused an uproar when it claimed to have developed and AI model that used far less energy and much cheaper hardware than what the current western AI enterprises have been using. The news caused AI darling and semiconductor manufacturer Nvidia to lose over $500 billion of market cap. While this is an advance of AI, it is a setback for those that make the high-end hardware. If you can get there in a Chev why bother buying a Rolls Royce?
In tax related news, it looks like 2 unpopular taxes will be axed by the end of the year (Is there such a thing as a popular tax??). Leading candidates for the Liberal Party have said they will end the consumer carbon tax (and its attendant rebate) and the higher capital gains inclusion rate included in last year’s budget. This does make the Conservative “Axe the Tax” campaign moot.
My trip to London was short, fun, but very hectic. The purpose of the trip was to help celebrate one of Hil’s relative’s milestone birthdays. Along the way I got to catch up with friends, clients, and take in a few sites. While there were lots of highlights, the one that stands out was dinner at the House of Lords followed by getting to sit in the chamber to watch the debates (Thank you Lord & Lady T). The debate was a contrast in times. The subject was a Bill dealing with Artificial Intelligence in an institution that dates to the early 11th century.
The other piece of cool London Trivia I picked up is that George Handel and Jimi Hendrix were neighbours. Who knew? With that in mind I’ll leave you with this classic from Jimi Hendrix…. enjoy
Russ Lazaruk, RIAC, CIWM, CIM, FCSI
Managing Director & Portfolio Manager
