,

March 2025

For decades, Canada, Europe, and parts of Asia have trusted America’s “superpower stack”—defence treaties, trade deals, nuclear weapons, the dollar banking system—because it is mutually beneficial. The Trump overhaul of the global economy with sweeping tariffs has led to concern over inflation and growth. Now, global consumer spending has slowed outside of China due to the escalating trade war threat. The most obvious warning sign is the sharp decline in American stock markets in recent weeks. In March we updated the twelve-month forward outlook to reflect our view of six months of Stagnation (U.S. Real GDP growth less than 2.5%) followed by six months of Recession (negative GDP growth) over the next twelve- month period.

China’s consumer prices dropped by 0.7%1 while surveyed unemployment edged higher to 5.4% in February from 5.2% in the previous month.2 China’s trade surplus with the U.S. reached USD 49.05 billion, with exports and imports rising by 2.3% and 2.4% respectively.3 Inflation in the Euro Area decreased to 2.3% in February,4 while unemployment remained unchanged at 6.2% in January.5

The U.S. economy expanded an annualized 2.4% in Q4 2024.6 The U.S. consumer price index increased by 0.2% month-over-month in February 2025,7 while the U.S. unemployment rate rose to 4.1% in February.8 The U.S. posted a record trade deficit of $131.4 billion in January 2025. Imports surged 10%, driven by anticipation of upcoming tariffs. Exports rose at a slower 1.2%.9 The Consumer Price Index in Canada increased 1.1%,10 while the unemployment rate was 6.6%.11 The Canadian trade surplus widened to CAD 4.0 billion in January 2025, the largest since May 2022. Canada’s merchandise exports rose 5.5%, while imports increased 2.3%. Export growth was driven by motor vehicles and parts (+12.5%), energy products (+4.8%), and consumer goods (+7.8%), particularly pharmaceutical products (+41.5%). Exports to the U.S. surged 7.5%, amid tariff threats.12  

U.S equity markets were buffeted by several headwinds in February, including potential impending tariffs, geopolitical tensions, economic weakness, and a decline in consumer confidence, with the S&P 500 closing the month down 1.3%. Mid and small caps fared worse than their large-cap peers, with the S&P Mid Cap 400 and S&P Small Cap 600 falling 4.4% and 5.7%, respectively. Canadian equities finished the month on the downside. The S&P/TSX Composite decreased 0.4%. The Bank of Canada highlighted growing uncertainty in its economic outlook due to the unpredictability of U.S. tariff threats, which could impact prices for Canadian businesses and consumers, dampening demand for riskier assets in Toronto. February was a strong month for European equities, with the large-cap S&P Europe 350 gaining 3.6%, followed by the S&P Europe Midcap and Smallcap indices rising 2.6% and 1.1%, respectively. Pan Asia equities faced pressure in February due to concerns over U.S. tariffs, with the S&P Pan Asia BMI (USD) declining by 0.6%.

In March, in response to pending U.S. tariffs, we reduced exposure across all models to U.S. Large Caps by 5 percent and added that exposure to Gold. We use diversifiers including short duration U.S. fixed income exposure as yields are expected to respond to renewed inflation. Gold is held across all models as a long-term strategic asset, playing a role as an effective hedge against the heightened geopolitical uncertainty and market volatility that is currently in play. While Gold is not a direct target of tariffs, market reactions to trade uncertainty have driven a significant shift in trading behaviour, positively impacting the gold price. Despite its rally, gold is a long way from its all-time inflation-adjusted peak, which was set in 1980 and equates to about $3,800 an ounce.

The onset of the North American Trade War has created unprecedented near-term distortions to trade flows across the region, with a surge in imports in the U.S. and of exports from Canada. A protracted trade conflict will sharply reduce exports and investment. It will cost jobs and boost inflation in the next few years and lower the standard of living in the U.S. and all countries targeted. The uncertainty alone is causing harm.  Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

Drew Millard, Portfolio Manager

1 Trading Economics. China Inflation. March 9, 2025.

2 Trading Economics. China Unemployment. March 17, 2025.

3 Trading Economics. China Trade. March 7, 2025.

4 Trading Economics. EU Inflation. March 19, 2025.

5 Trading Economics. EU Unemployment. March 4, 2025.

6 Trading Economics. U.S. GDP. March 27, 2025.

7 Trading Economics. U.S. Inflation. March 12, 2025.

8 Trading Economics. U.S. Unemployment. March 7, 2025.

9 Trading Economics. U.S. Trade. March 6, 2025.

10 Trading Economics. Canada Inflation. March 18, 2025.

11 Trading Economics. Canada Unemployment. March 7, 2025.

12 Trading Economics. Canada Trade. March 6, 2025.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. February 28, 2025. Index performance is based on total returns and expressed in the local currency of the index.

/by
,

February 2025

U.S. trade policy represents a clear and significant risk to our macro-economic forecast. Open trade between Canada and the United States has benefitted both countries, increasing efficiency, spurring investment, boosting productivity, and raising standards of living. The imposition of tariffs will kick this into reverse. Tariffs on Canadian goods would lead to higher gas and other goods prices for U.S. consumers and higher input costs for corporations. The impact on the Canadian economy would be larger, reflecting the high share of exports to the U.S. relative Canada’s GDP. As Canadian goods become more expensive, U.S. demand for those goods would decline. A lower Canadian dollar would provide a partial offset. Negative indirect effects will occur, as lower exports weigh on Canadian firm profitability, leading to lower employment, private investment, and consumption. And as the U.S. also targets China and Europe, broader country tariffs will weigh on global growth.

China’s annual inflation rate climbed to 0.5% in January 2025 from 0.1% in December.1 The Eurozone’s annual GDP growth rate was confirmed at 0.9% in the fourth quarter of 2024. Spain led with a robust 3.5% growth, followed by the Netherlands (1.8%), France (0.7%), and Italy (0.5%). In contrast, Germany, the Eurozone’s largest economy, remained in contraction, shrinking by 0.2%.2  The consumer price inflation rate in the Euro Area was confirmed at 2.5% in January,3 while the unemployment rate in the Euro Area ticked up to 6.3% in December 2024.4

Final sales of domestic products in the United States increased by an annualized 3.2% in the fourth quarter of 2024.5 The annual inflation rate in the U.S. edged up to 3% in January,6 while the U.S. unemployment rate dipped by 0.1 percentage points to 4.0%.7 The U.S. trade deficit in goods widened to a record $122.11 billion in December 2024. Imports surged 3.9% to $289.6 billion, as U.S. companies rushed to secure goods ahead of potential Trump administration tariffs. Exports dropped 4.5% to $167.5 billion.8 As expected, the Bank of Canada cut its policy rate by 25 bps at the end of January, noting that past cuts are helping to cushion the economy. The Canadian annual inflation rate inched higher to 1.9% in January of 2025, below the Bank of Canada’s midpoint target of 2%.9 The unemployment rate in Canada fell to 6.6% in January.10 Canada posted a trade surplus of C$0.7 billion in December of 2024, swinging from the upwardly revised deficit of C$1 billion in the previous month. The rise in trade turnover was supported by the sharp depreciation in the Canadian dollar.11 

Thanks to relatively strong earnings results and robust consumer spending, the S&P 500 concluded the month with a 2.8% gain. Mid and small caps outperformed their large-cap peers, with the S&P Mid Cap 400 and S&P Small Cap 600 up 3.9% and 2.9% respectively. Canadian equities finished the month on the upside with the S&P/TSX Composite up 3.5%. Cheered by interest rate cuts and unbothered by AI wobbles, European equities started the year impressively as the S&P Europe 350 surged by 6.5% to close at an all-time-high. Most countries contributed positively to the pan-European Index’s returns in January with heavyweights France and Germany leading the way. Denmark was the sole detractor. Pan Asia equities began the new year on a positive note, with the S&P Pan Asia BMI (USD) rising by 0.9% in January.

In February, in response to pending U.S. tariffs, we removed exposure to U.S. mid caps across all models and split the proceeds equally between gold and the 3-to-7-year Treasury Bond. We use diversifiers including short duration U.S. fixed income exposure as yields are expected to respond to renewed inflation. Gold is held across all models as a long-term strategic asset, playing a role as an effective hedge against the heightened geopolitical uncertainty and market volatility that is currently in play.  While Gold is not a direct target of tariffs, market reactions to trade uncertainty has driven a significant shift in trading behaviour and positively impacted the gold price.

After World War II, the allied nations created the Bretton Woods institutions and progressively reduced tariffs. They wanted to avoid the protectionism and instability of the Great Depression. The danger of the current tariff threats is that negative economic policies will have impact before any positives are enacted. Moreover, the main probable positive – tax cuts – is already assumed, and the other – de-regulation – is intangible. A protracted trade conflict would sharply reduce exports and investment. It will cost jobs and boost inflation in the next few years and lower the standard of living in the U.S. and all countries targeted. The uncertainty alone is causing harm. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

Drew Millard, Portfolio Manager

1 Trading Economics. China Inflation. February 9, 2025.

2 Trading Economics. Euro GDP. February 14, 2025.

3 Trading Economics. Euro Inflation. February 24, 2025.

4 Trading Economics. Euro Unemployment. January 30, 2025.

5 Trading Economics. U.S. GDP. January 30, 2025.

6 Trading Economics. U.S. Inflation. February 12, 2025.

7 Trading Economics. U.S. Unemployment. February 7, 2025.

8 Trading Economics. U.S. Trade. January 29, 2025.

9 Trading Economics. Canada Inflation. February 18, 2025.

10 Trading Economics. Canada Unemployment. February 7, 2025.

11 Trading Economics. Canada Trade. February 5, 2025.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. January 31, 2025. Index performance is based on total returns and expressed in the local currency of the index.

/by
,

January 2025

In delivering the first international speech of his second mandate by video from the White House at the World Economic Forum in Davos, United States President Donald Trump reiterated his tariff threats against Canada and the European Union while also warning other countries of potential tariffs if products are made outside of the U.S.1 The President also urged OPEC to lower oil prices and central banks across the world to lower interest rates. In declaring a “national energy emergency”, Trump will focus on transforming U.S. energy. In addition to supplying oil into the U.S. in order to meet their demand deficit, Canada has been supplying 50–80 per cent of (the U.S.’s) needs in zinc, tellurium, nickel, and vanadium, with “abundant reserves” of cobalt, graphite, lithium, and other metals.2 It will be challenging for the U.S. to impose tariffs without damaging U.S. economic growth and running up inflation. In January, we maintained the twelve-month forward outlook to reflect our view for Stagnation (U.S. Real GDP growth less than 2.5%) over the next twelve- month period.

The Chinese economy expanded by 5.4% in Q4 2024. It was the strongest annual growth rate in 1-1/2 years, boosted by a series of stimulus measures launched since September. For the full year, the GDP grew by 5.0%.3 China’s trade surplus soared to USD 104.84 billion in December 2024, up from USD 75.31 billion in the same period a year earlier, driven by a surge in exports. For the full year of 2024, the trade surplus was at USD 992.16 billion, with exports advancing 5.9% to USD 3.58 trillion while imports rose at a softer 1.1% to USD 2.59 trillion.4 The annual inflation rate in the Euro Area accelerated for a third straight month to 2.4% in December of 2024.5 

The annual inflation rate in the U.S. rose for a 3rd consecutive month to 2.9% in December.6 The unemployment rate in the United States went down to 4.1% in December from 4.2% in the previous month.7 The trade deficit in the U.S. widened to $78.2 billion in November. The U.S. deficit was little changed with China ($-25.4 billion vs $-25.5 billion) and Mexico ($-15.4 billion).8 The Consumer Price Index in Canada decreased 0.4% month-over-month in December, the first decline in three months.9 The unemployment rate in Canada eased to 6.7% in December, down from 6.8% in the previous month.10 Exports to the U.S. rose 6.8%, widening the surplus with the U.S. from CAD 6.6 billion to CAD 8.2 billion, while exports to other countries fell 10.3%, widening the non-U.S. trade deficit from CAD 7.2 billion to CAD 8.5 billion.11 

A pullback in December led to the U.S. S&P 500 finishing the year up 25.02%, closing out the best two year run since 1998. The S&P Midcap 400 and S&P SmallCap 600 were up 13.9% and 8.7%. The S&P/TSX Composite increased 21.7% in 2024. The S&P Europe 350 shed 2.5% in the final quarter but finished 2024 with a 9.7% total return. The United Kingdom was the brightest spot, contributing +3.5%, followed by Germany with a 2.4% contribution. Pan Asia equities slipped in the last month of the year, with the S&P Pan Asia BMI posting an annual return of 9%.

In January, we maintained all exposures held in December. We use diversifiers including short duration U.S. fixed income exposure as yields are expected to respond to renewed inflation.  Many assets become increasingly correlated as market uncertainty rises and volatility is more pronounced. Gold is different in that its negative correlation to equities and other risk assets increases as these assets sell off.  Gold is held across all models as a long-term strategic asset, playing a role as an effective hedge against the heightened geopolitical uncertainty and market volatility that is currently in play.

The U.S. budget gap is the largest among the Group of Seven advanced economies. The combined deficit for federal, state, and local governments in the U.S. will top 7% of economic output in 2025, according to International Monetary Fund projections.12 With the U.S. forging ahead with a protectionist and predatory agenda, foreigners are less likely to be as willing to underwrite U.S. consumption. We stand by our view that volatility is best managed using our top-down focus. We expect gold to benefit from continuing strong central bank and investor demand, which has been offsetting declining consumer demand, heightened geopolitical risk due to increased conflicts, and from periods of opportunity costs when markets saw lower yields and a weakening U.S. dollar. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.

Deborah Frame, President and CIO

Drew Millard, Portfolio Manager

1 World Economic Forum, Davos. January 2025.

2 Natural Resources Canada. December 2024.

3 Trading Economics. China GDP. January 17, 2025.

4 Trading Economics. China Trade. January 13, 2025.

5 Trading Economics. EU Inflation. January 17, 2025.

6 Trading Economics. U.S. Inflation. January 15, 2025.

7 Trading Economics. U.S. Employment. January 10, 2025.

8 Trading Economics. U.S. Trade. January 7, 2025.

9 Trading Economics. Canada Inflation. January 21, 2025.

10 Trading Economics. Canada Employment. January 10, 2025.

11 Trading Economics. Canada Trade. January 7, 2025.

12 International Monetary Fund. November 2024.

Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. December 31, 2024. Index performance is based on total returns and expressed in the local currency of the index.

/by