NEW YORK — The ongoing trade conflicts have been casting a shadow over Canadian financial markets.
Canada’s leading stock index has been experiencing declines similar to those in the United States since President Donald Trump initiated trade tensions with neighboring North American countries. Meanwhile, Mexico’s stock index remains relatively stable thanks to interventions by the Mexican government aimed at calming the financial markets.
The Toronto Stock Exchange’s S&P/TSX composite index hit a historical peak on January 30 before starting its descent the next day following Trump’s announcement of 25% tariffs on goods from Canada and Mexico. Since then, market volatility has increased as Trump frequently changes his stance on imposing or delaying tariffs.
The S&P/TSX composite has lost approximately 5% since the onset of the trade dispute on January 31. Notably, the financial sector has suffered significantly with an 8.6% decline, while the industrial sector has decreased by 7.4%, and the energy sector has seen a 5.4% drop.
U.S. markets have also faced challenges, with the S&P 500—a key stock market indicator—dropping 10% from its record high set in February. Investor concerns vary on opposing sides of the Canada-U.S. border.
In Canada, the primary worries revolve around the potential negative effects on economic growth, warns Frances Donald, chief economist at RBC. There are fears that investment could stagnate and unemployment might rise due to these uncertainties.
“This uncertainty, in and of itself, is already creating pain,” Donald noted.
In contrast, the U.S. is troubled by the prospect of rising inflation. The Federal Reserve has mitigated rising inflation pressures by increasing interest rates, feeling sufficiently confident in its decreasing trend to begin cutting rates by the end of 2024. Inflation in the U.S. has neared the central bank’s 2% target, but any resurgence may pose challenges.
A University of Michigan survey released Friday indicates that U.S. consumers anticipate higher inflation in the future, with long-term expectations rising to 3.9% from last month’s forecast of 3.5%, representing the largest monthly increase since 1993.
In Canada, inflation rates are already below 2%, potentially giving the country’s central bank a smoother path to manage any rise. The Bank of Canada has recently reduced its overnight interest rate by 0.25 percentage points to 2.75%, continuing its trend of seven consecutive rate cuts.
