Volatility is the watch word this week with markets reacting to every announcement or rumour coming out of the Whitehouse. Tariffs are the big story in North America while Europe grapples with security and the need to massively increase defence spending. Markets hate uncertainty and we have lots of it right now. As I write this there are a couple of bright spots, the Canadian dollar is up a bit and gold continues to shine.
| Index | Close Feb. 27th 2025 | Close Mar. 6th 2025 |
| S&P500 | 5,874 | 5,740 |
| TSX60 | 25,128 | 24,584 |
| Canada 10 yr. Bond Yield | 2.99% | 3.09% |
| US 10 yr. Treasury Yield | 4.27% | 4.30% |
| USD/CAD | $1.44405 | $1.43007 |
| Brent Crude | $73.74 | $69.40 |
| Gold | $2,877 | $2,911 |
| Bitcoin | $84,194 | $89,175 |
Source: Trading Economics & Factset
To tariff or not to tariff, that is the question. Blanket 25% tariffs on Canada and Mexico were supposed to come in on Tuesday. Then, one assumes after some panicked calls from the US auto sector, autos and parts got a one-month reprieve. The equity market rallied a bit then plummeted on Thursday. Consequently (we assume) both Canada and Mexico got another one-month reprieve on all USMCA (NAFTA) related goods (essentially everything).
In addition to the big swings in the equity markets, bonds are having their own roller coaster ride. The uncertainty has traders vacillating between fears of inflation and higher yields (lower bond prices) and a sharp economic slowdown and lower yields (higher bond prices). There are more factors in play than tariffs (more on that below). Markets are now pricing in 3 potential rate cuts from the Federal Reserve rather than the one or none of just a month ago. Expectations are also rising for a March rate cut by the Bank of Canada.
The Federal Reserve Bank of Atlanta is predicting a 2.4% drop in US GDP for the first quarter. Part of this may be attributed to a surge in imports for the month of January to get ahead of tariffs. When GDP is calculated, imports are deducted from domestic expenditures and exports. But there are other areas of softness including a fall in retail sales, a drop in house sales, falling savings, and government layoffs (DOGE).
The abandonment of Ukraine by the Trump administration has spurred Europe to action. Germany has had a “debt brake” as part of its constitution since 2009. It speaks to Germany’s aversion to debt, a reaction to the 2008-9 Global Financial Crisis but more fundamentally the havoc of the Weimar Republic. This week, Germany eased the debt restrictions to enable the borrowing of $1 trillion Euros for defense and infrastructure. This is in conjunction with EU plans to spend 800 billion euros on defence and support for Ukraine.
The moves by both Germany and the EU have pushed German bond yields up from 2.33% at the end of February to 2.88% at the close on Thursday. The increase in spending along with another cut in the ECB’s lending rate this week has been positive for the equity markets in Europe.
Amongst all the angst, her is a bit of good news. Canada’s productivity improved in the last quarter of 2024. Most of the gains came from the service sector with accommodations, food services, and administrative services being the exceptions. We’ll take the win.
Finally, a note to remind everyone that despite the angst and turmoil, this is the time to make rational evidence-based decisions. Markets have been through worse then recovered to reach new highs. In every market downturn (and we are not even in correction territory yet, let alone a bear market) value is created.
We’ll close off with a bit of Canadiana from Stan Rogers, which you’ll find on the face of every dime…. Enjoy!
Russ Lazaruk, RIAC, CIWM, CIM, FCSI
Managing Director & Portfolio Manager
