TORONTO — Stock markets and the Canadian dollar fell Friday as it became increasingly likely that U.S. President Donald Trump would impose tariffs starting Feb. 1.
The S&P/TSX composite index traded up earlier in the day after a report said the tariffs could be delayed, but the index closed down 275.15 points at 25,533.10 after the White House confirmed it intended to go ahead with tariffs on Saturday.
"It's still a wait-and-see approach, but it looks like the markets are reacting, not surprisingly, negatively to the news," said Kevin Headland, co-chief investment strategist at Manulife Investment Management.
There's still no clarity as to what kind of exemptions, if any, there may be to the 25 per cent tariffs that are anticipated.
While the tariffs and Canada's retaliation are expected to be damaging, markets still aren't betting on the worst-case scenarios, said Headland.
"I don't think it's been fully priced in."
He said the bond market is starting to bet that interest rates could fall faster in Canada because tariffs will hurt the economy, while investors are betting that U.S. rates could stay elevated because of the higher inflation risk the border taxes will bring.
The higher interest rate outlook in the U.S. hit the market, especially growth stocks that are more sensitive to rates like Nvidia, which closed down 3.7 per cent on the day.
In New York, the Dow Jones industrial average closed down 337.47 points at 44,544.66. The S&P 500 index was down 30.64 points at 6,040.53, while the Nasdaq composite was down 54.31 points at 19,627.44.
The Canadian dollar dipped below 69 cents intraday but overall traded for 69.04 cents US, compared with 69.38 cents US on Thursday.
The Bank of Canada will have a difficult road ahead as tariffs will likely create both upward inflationary pressure and heightened economic risk, said Headland.
But because the tariffs are a one-time increase in prices, rather than the sustained pressures seen during the pandemic, he thinks the central bank will lean toward lowering rates to aid the economy.
"Our bias is towards the bank cutting to protect the economy in any tariff situation," he said.
The March crude oil contract was down 20 cents at US$72.53 per barrel and the March natural gas contract was down less than a penny at US$3.04 per mmBTU.
The April gold contract was down US$10.20 at US$2,835.00 an ounce and the March copper contract was down three cents at US$4.28 a pound.
This report by The Canadian Press was first published Jan. 31, 2025.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
Ian Bickis, The Canadian Press