Tariff Uncertainty Rattles Markets

Transcript

Hello everyone welcome to Market weekend review for the week ending March 7th 2025 my name is Ban Lynn I'm a senior investment strategist and head of Canadian strategy here at Russell Investments on this week's Market weekend review we're going to be discussing three major topics First Market volatility it's back what's driving it second we'll talk about the European Central Bank and finally we'll wrap up with a look at China so First Market volatility this has been a pretty bumpy week in the equity markets not only in the US but also globally as well and a key driver of this volatility is uncertainty around tariffs so this week we got a lot of developments on the latest us tariff situation and I do want to emphasize that this situation continues to remain fluid and dynamic so early in the week we got confirmation from president Trump that he would impose tariffs on Canadian Imports and Mexican Imports after having previously paused those tariffs that was followed by a announcement from the Canadians that they were going to impose retaliatory tariffs on a subset of US exports up to Canada and the Mexican Government announced that they would unveil at a press conference that was to take place over the weekend their retaliatory responses so Market sold off on Monday and Tuesday as a result of some of these tariff announcements on Wednesday though we saw the equity markets rebound noticeably and part of that was because we had some senior Administration officials in the US hint about the possibility that maybe the US would Grant a reprieve for Canada and Mexico such that a certain subset of those Imports would be subject to an exemption for an additional time period and on Thursday we got confirmation from the White House that Goods from Mexico and Canada that qualify under the US Mexico Canada agreement would in fact be subject to exemption from Duty for another 30 days but on Thursday we still saw us Equity market sell off sharply we saw the S&P 500 down around two percentage points at one point in the trading day and I think a key reason for this is because even with the reprieve there's still a lot of questions that remain unanswered for example exactly what proportion of goods count as qualifying Goods under the US Mexico Canada agreement some sources have a higher estimate whereas other sources have a bit of a lower estimate then there's the question of after the 30-day reprieve what happens do we go back to the potential for more tariffs on Canada and Mexico and how might those governments respond to the imposition of tariffs by the US and also could the US tariffs potentially broaden out to Encompass other kind countries as well or other products or will we see a deal of some sort reach between all these countries ultimately when we have periods of uncertainty that can weigh on investors mindsets and I think that's one of the reasons why we saw a little bit of an equity Market volatility this week now in these volatile times we think it's really important for investors to stay disciplined stick close to that strategic asset allocation and really take a long-term approach to thinking about portfolio decisions rather than being driven around by the noise and the volatility next I want to talk about the European Central bank's latest decision they decided to lower interest rates by 25 basis points that was pretty much in line with what most economists were expecting now in their statement the ECB did reference the fact that interest rates are now meaningfully less respective than they once were but at the same time they also downgraded their growth forecast for 2025 2026 bottom line I think on a forward-looking basis the European Central Bank like major central banks elsewhere is going to continue to remain data depended and if we were to see the European economy slow either as a result of new tariffs or as a result of other factors the ECB could potentially cut interest rates by more than what's currently priced in and finally in terms of China they held their two sessions meetings earlier this week and there were a couple key announcements the first was that they decided to announce a GDP growth Target for the year of around 5% now that matches the growth Target they set last year but remember that with each passing year that becomes a higher and higher hurdle that they have to meet and from our perspective at Russell Investments we think that they're going to need to do more stimulus in order to reach that growth objective they did announce a little bit of a desire to try to do more in terms of potential tax cuts But ultimately we didn't see a big bazooka package of stimulus instead we got more incremental stimulus that was roughly in line with economist's expectations this week but on a forward looking basis we continue to think that the Chinese government would likely need to do more stimulus if they want to reach that 5% growth Target and we think that they're still very deeply committed to the economy and so we do see the possibility of even more stimulus measures to come thanks for tuning in and we'll see you next time on Market week can review hi I'm Sophie Anto head of portfolio and business Consulting at Russell Investments if you liked what you just saw and heard consider subscribing to our YouTube channel or check us out on LinkedIn thanks for tuning in

Key takeaways:

Markets remain volatile amid trade war worries
The European Central Bank lowered rates again
China announced a 2025 growth target of 5%

On the latest edition of Market Week in Review, Senior Investment Strategist and Head of Canadian Strategy, BeiChen Lin, discussed how markets are reacting to U.S. trade policy uncertainty. He also reviewed the European Central Bank’s (ECB) latest decision on rates and shared key takeaways from China’s annual political meetings.

Markets jolted

Lin began by noting it’s been a particularly bumpy week in U.S. and global equity markets, primarily due to uncertainty around tariffs. Stressing that the situation remains fluid and dynamic, he said the week began with confirmation from U.S. President Donald Trump that the U.S. would impose previously paused 25% tariffs on Mexican and Canadian imports and increase tariffs on Chinese imports.

Following this development, Canada announced it would implement retaliatory tariffs on a subset of U.S. exports, while Mexico said it would unveil retaliatory measures over the weekend, Lin said. As a result, equity markets sold off sharply Monday and Tuesday, he said.

The rollercoaster ride continued Wednesday, with a noticeable rebound in markets after senior U.S. administration officials hinted the U.S. might delay tariffs on some products from Mexico and Canada, Lin stated. This was followed by confirmation from the White House on Thursday that Mexican and Canadian imports covered under the U.S.-Mexico-Canada Agreement (USMCA) would be exempt from tariffs for 30 days, Lin explained.

Despite this news, he noted U.S. equity markets still sold off sharply on Thursday, with the benchmark S&P 500 Index down by 2% at one point during the day. Why? Lin explained that even with the reprieve, plenty of questions about tariffs remain.

“For instance, what percentage of Mexican and Canadian goods will count as qualifying goods under the USMCA trade pact? And what will happen after the 30-day reprieve? Will these tariffs be re-implemented? If so, how might Mexico and Canada respond? And could the U.S. potentially impose tariffs on other countries or products? Or will a deal be reached to scrap tariffs altogether? These are all important questions that remain unanswered,” Lin noted.

Ultimately, markets dislike uncertainty—and that’s a big reason why there’s been so much volatility lately, he said. Lin finished by emphasizing that during times like today, it’s important for investors to stay disciplined and close to their strategic asset allocations.

“I think it’s critical for investors to take a long-term perspective when thinking about portfolio decisions, rather than reacting to all the noise and volatility in the markets,” he stated.

ECB cuts continue

Shifting to Europe, Lin said the ECB decided to lower interest rates by 0.25% at its March policy meeting. The decision was in line with what most economists were expecting, he added.

Lin noted the ECB characterized rates as “meaningfully less restrictive” than before, which was a change from prior statements. At the same time, however, the central bank also downgraded its growth forecast for 2025 and 2026, he said.

“The bottom line here is that moving forward, the ECB—like major central banks elsewhere—will likely remain data-dependent. From my vantage point, this means if the European economy were to slow due to new tariffs or other factors, the ECB could potentially cut rates by more than markets expect,” Lin stated.

China's growth goal

Pivoting to China, Lin noted that the world’s second-largest economy kicked off its annual political meetings—known as the Two Sessions—earlier this week. At the gathering, the Chinese government announced a 5% GDP (gross domestic product) growth target for 2025, he said. “This matches the growth target China set last year, but it’s important to understand that with each passing year, a 5% increase from the prior year becomes a higher hurdle to meet,” Lin explained.

He said that from his perspective, China will likely need to inject more stimulus into the economy in order to reach this target. While government leaders did express a desire to roll out more stimulus measures, such as potential tax cuts, no major stimulus packages have been announced, Lin said. Instead, Chinese leaders have unveiled incremental stimulus measures that are roughly in line with economist expectations, he explained. However, there could still be more stimulus to come, Lin added.

“Because China is very committed to boosting economic growth, I think there’s a possibility we’ll see more stimulus measures in the months ahead,” he concluded.

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