The first quarter of 2025 represented significant challenges for global financial markets, mainly driven by escalating trade tensions, according to a Sun Life note.
The US imposed tariffs on a range of goods from several countries, including Canada, raising concerns over the potential slowdown in economic growth. Canada has retaliated with tariffs on US goods.
The trade conflict highlights ongoing risks to global economic stability, yet markets are still expected to maintain long-term growth despite the immediate pressures, Sun Life said.
The trade dispute intensified as the US introduced tariffs on goods from Canada and Mexico, with the latter receiving a partial exception for energy exports.
Canada responded by imposing tariffs on US products, and many markets are bracing for an economic slowdown in the region. The Bank of Canada (BoC), no longer focused on inflation, took action by lowering its interest rates by 50 basis points to 2.75% in an attempt to mitigate the effects of these tariffs on the economy.
Meanwhile, US inflation showed signs of easing, offering some relief, but the tariffs could push consumer prices higher in the coming months.
In response to this uncertain environment, the US Federal Reserve decided to keep its interest rates steady at 4.25%-4.50%, while other central banks also adjusted their policies accordingly.
In terms of economic performance, the US economy grew by 2.4% in the fourth quarter of 2024, while China’s economy expanded by 5.4%. Europe’s growth stagnated, and Japan saw a modest increase of 2.2%.
This mixed economic landscape contributed to volatility in equity markets, with US, Chinese, and Japanese stocks posting losses, while markets in Canada, Europe, and emerging economies experienced gains, Sun Life said.
Commodity markets also reflected the trade tensions. Oil prices saw a decline following OPEC’s announcement to increase production, as slowing global demand due to trade disruptions may dampen prices. In contrast, gold prices hit record highs, driven by its safe-haven appeal amid economic uncertainty.
With trade disruptions weighing on global economic activity, central banks are adjusting their strategies.
The BoC lowered rates in response to mounting risks, while other central banks are carefully monitoring the situation. For investors, diversification remains key in navigating the ongoing volatility and uncertainty, according to the note.
