The Morningstar Canada Index cratered immediately after the start of trading on Thursday morning, falling as much as 3% as traders around the world reacted to punitive US reciprocal tariffs. The S&P/TSX Composite Index also fell 3% (24,474.92 points) to start the day, dragged down by energy and mining stocks, as new tariffs triggered fears of recission among global trading partners.
The Canadian dollar showed surprising strength in a relief rally that saw the currency jump to C$1.40 against the US dollar from C$1.43 the day before. As of 11 a.m. EDT, the loonie had climbed to its highest level since early December, as the greenback lost value against major global currencies.
While Canada got a reprieve from Wednesday’s punitive reciprocal tariffs, the market remains concerned about existing levies on automotive, energy, and a range of other goods that fall outside the ambit of the Trump-approved North American trade treaty, the USMCA.
Canadian benchmarks plunged as part of a broader worldwide market selloff. However, the country’s stock market performance so far this year has been relatively stronger than its US peers due to its lower valuation and sectoral constitution. The Morningstar Canada Index has gained 3.4% in the year to date, substantially outpacing the Morningstar US Market Index’s 3.5% loss.
The tariffs announced were much larger than what anyone expected, touching off shockwaves across financial markets, explains Tiago Figueiredo, macro strategist at Desjardins Capital Markets. “Markets are interpreting news as a growth shock, with stock/bond correlations staying negative, which I think is the right interpretation,” he says. “In Canada, we’re still seeing TSX outperform the S&P500 this morning, and I think that could continue.”
Sal Guatieri, senior economist at BMO, pointed out the sharp downdraft in leading equity futures after the market close on Wednesday following the tariff reveal. “Investors are giving the reciprocal duties a big thumbs down,” he said in a note to investors. He adds that given the relative reprieve for Canada and Mexico in yesterday’s announcement, it’s possible the North American trading partners are set up for a more constructive path in the weeks ahead.
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