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The turmoil caused by the trade war is significantly impacting financial markets in Canada.
The primary stock index in Canada has been declining alongside U.S. indexes since President Donald Trump commenced a trade conflict with neighboring countries in North America.
In contrast, Mexico’s principal stock index has remained relatively stable due to actions taken by the Mexican government aimed at stabilizing its financial markets.
The S and P/TSX composite index of the Toronto Stock Exchange reached a record high on January 30. However, it began to decline the following day after the announcement of a 25 percent tariff on all goods imported from Canada and Mexico. Since that time, Trump has introduced volatility in the markets by frequently altering his stance on the implementation or postponement of tariffs.
Since the onset of the trade war on January 31, the S and P/TSX composite has experienced a decline of approximately 5 percent. The financial sector has been particularly affected, suffering an 8.6 percent drop, while the industrial sector has decreased by 7.4 percent, and the energy sector has lost 5.4 percent.
U.S. markets have also faced declines, with the S and P 500, a crucial indicator of market performance, experiencing a 10 percent drop from its peak in February. Investors on either side of the border have varying concerns.
In Canada, the primary worry revolves around the potential impact on economic growth, as noted by Frances Donald, chief economist at RBC. Specifically, there are fears that investment may stagnate and unemployment could increase.
This uncertainty, in itself, is already causing distress, she remarked.
In the United States, however, there are growing apprehensions regarding inflation.
The Federal Reserve has managed to temper rising inflation by increasing interest rates and feels sufficiently confident in the downward trend to begin reducing rates by the end of 2024. The inflation rate in the US has approached the central bank’s target of 2 percent, yet the Fed may face challenges in preventing a resurgence.
A survey published on Friday by the University of Michigan indicated that consumers are preparing for higher inflation in the future, with long-term expectations rising to 3.9 percent from last month’s forecast of 3.5 percent. This represents the largest month-over-month increase since 1993.
In Canada, the inflation rate is already below 2 percent, which may allow its central bank to manage any potential increases more effectively.
