NEW YORK — Trade war turmoil is weighing heavily on financial markets in Canada.
Canada’s main stock index has been tumbling along with U.S. indexes since President Donald Trump initiated a trade war with his North American neighbors. Mexico’s main stock index has remained relatively steady following measures from the Mexican government to stabilize financial markets.
The Toronto Stock Exchange’s S&P/TSX composite index reached an all-time high on Jan. 30. It started sliding a day later following the first salvo in the form of announced 25% tariffs on all goods from Canada and Mexico. Since then, Trump has rattled markets with uncertainty as he changes his mind on implementing or delaying tariffs on a seemingly daily basis.
The S&P/TSX composite has shed about 5% since Trump opened the trade war on Jan. 31. The financial sector is among the hardest hit, with a 8.6% drop. The industrial sector is down 7.4%, while the energy sector has shed 5.4%.
U.S. markets have also been tumbling, with the S&P 500, a key benchmark for the market’s health, notching a 10% decline from its all-time high set in February. Investors have slightly different concerns depending on which side of the border they’re standing.
In Canada, the concerns are focused on the impact to growth, said Frances Donald, chief economist at RBC. Specifically, investments could stall and unemployment could rise.
“This uncertainty, in and of itself, is already creating pain,” she said.
In the U.S., though, there are rising concerns about inflation.
The Federal Reserve helped cool rising inflation by raising interest rates and it felt comfortable enough with the downward trajectory to start cutting rates at the end of 2024. The rate of inflation in the U.S. has eased close to the central bank’s goal of 2%, but the Fed might have trouble dousing a reignition.
A survey released Friday by the University of Michigan showed that consumers are bracing for higher inflation in the future, with expectations for the long term jumping to 3.9% from last month’s prediction of 3.5%. That’s the biggest month-over-month jump since 1993.
The rate of inflation in Canada is already below 2% and its central bank could have an easier time dealing with an increase. The Bank of Canada recently trimmed its overnight interest rate a quarter-point to 2.75%, marking its 7th consecutive rate cut.