Launch Pad

The “So much for being Mr. NICE GUY” tirade from Trump comes as investors digest the latest economic data out of the U.S., including consumer spending which slowed sharply in April, rising just 0.1% after a strong March, while core inflation remained under control at 2.5% year-over-year, the lowest in over four years. The modest spending gain was driven by services, offsetting declines in durable goods amid growing economic uncertainty and shifting trade policies. Although some tariffs have been paused or blocked, the ongoing volatility has weighed on consumer sentiment and financial outlooks. The Fed is expected to hold rates steady as it assesses the impact of trade dynamics on inflation, labour markets, and broader economic activity. 

Canada’s economy grew at an annualized pace of 2.2% in Q1, exceeding all forecasts. The increase was driven largely by a rise in tariff-related exports and inventory buildup as businesses raced to avoid looming U.S. tariffs. While the growth outpaced the BoC’s expectations and showed resilience in resource and finance sectors, domestic weakness persisted, with declines in household spending and business investment. Economists warn the momentum is likely temporary, with expectations of economic stagnation or contraction starting in Q2. Fiscal stimulus and rate cuts are expected to cushion the impact of Trump’s tariffs, which have already begun to weigh on consumer and corporate income. 

The TSX retreated from a record high yesterday, as mixed earnings from major banks pressured the financial sector and optimism from a U.S. court ruling on tariffs faded. Royal Bank of Canada missed profit expectations due to higher provisions for loan losses, falling 3.5%, while CIBC edged lower despite beating estimates with strong capital markets performance. Financials dropped 0.6% and consumer staples declined 0.8%, though gains in real estate and utilities helped offset losses. This came as recent U.S. economic data points to mounting headwinds. While Q1 U.S. GDP was slightly revised up to -0.2% quarter-on-quarter, consumer spending was revised sharply lower to 1.2%, and pending home sales fell 6.3% in April, the steepest drop since September 2022. These signs indicate that previously weak sentiment is now translating into softer domestic demand. Despite push backs and court rulings, U.S. tariffs remain intact, and restrictive Treasury yields are expected to further suppress household spending via higher mortgage rates. 

Well, that didn’t take long. A federal appeals court has temporarily paused a lower court ruling that blocked most of Trump’s sweeping tariffs, offering a short-term reprieve while the case proceeds. The original decision found Trump exceeded his authority under the International Emergency Economic Powers Act (IEEPA), which would have potentially reduced U.S. tariffs from nearly 27% to below 6%. The move comes after the U.S. Court of International Trade found Trump exceeded his authority under a 1977 emergency law by imposing broad tariffs, including his “Liberation Day” levies. The Justice Department argued that striking down the tariffs interferes with foreign policy and signaled it would appeal to the Supreme Court if needed. Meanwhile, a separate ruling by a federal judge in Washington also declared some of Trump’s tariffs unlawful, though it applied only to specific toy manufacturers and included a 14-day delay to allow for appeal. The legal battle could significantly shape the future of U.S. trade policy and the president’s tariff powers. 

Canadian companies are relying on a federal tax deferral to manage higher expenses from U.S. tariffs, gaining temporary cash flow relief to adjust operations and supply chains. The program, which allows deferred tax payments without proof of hardship, is especially beneficial to firms in steel, aluminum, manufacturing, and tariff-exposed regions like southwestern Ontario. While the deferral provides short-term liquidity, businesses and tax advisers are urging the government to extend the support and consider additional measures, warning that companies still face significant financial challenges when the taxes come due. Some firms remain cautious, noting the deferral’s administrative burden and its limited long-term value without broader trade resolution. 

The devastating wildfires in Western Canada are continuing to spread, with Saskatchewan joining Manitoba in declaring a state of emergency to combat the blazes. Saskatchewan’s Premier described the severity of the conditions as unprecedented and unlike anything they have ever faced, as 14 wildfires rage across the province. As of today, 84 wildfires have been deemed “out of control” in Canada, with incidents also located in Alberta, Ontario, and BC. The Canadian Armed Forces are being deployed to Manitoba to evacuate residents and fight the fires to prevent further expansion of existing incidents. However, smoke from the flames is a concern; by Friday, it is expected to reach several US cities including Minneapolis, Detroit, and Chicago, triggering air quality alerts. We remain hopeful that with coordinated efforts and improving conditions, progress can soon be made in bringing these fires under control.