The week has been dramatic so far, with the fallout from Trump-Zelenskyy providing a narrative for increasing tensions among many of the world’s leading economies.
With the US president escalating the spat with the Ukrainian leader late Monday by announcing a freeze on all aid for the nation at war with Russia, cutting off vital weaponry, the growing foreign policy cavern between the US and Europe would have been enough of a market-rattler on its own.
But even while decades-long alliances were straining, President Trump still followed through with his plan to introduce 25% tariffs on most goods from Canada and Mexico – citing the cross-border drug trade as the key issue, and 20% on China. In total around U$1.5 trillion in imports are affected.
The S&P 500 suffered its worst sell-off of 2025 so far in Monday’s session, losing almost 2% as investors weighed the impact of tariffs, with big tech among the heaviest burdens. Weaker-than-expected manufacturing data didn’t help. The index ended its session 5% below its February 19 peak.
Meanwhile, US Treasuries now outperform equities; a Bloomberg gauge of US sovereign debt has returned 2.1% since the Nov. 5 vote, beating a gain of 1.6% from the S&P 500 Index including reinvested dividends.
Morgan Stanley strategists commented: “The ‘US exceptionalism’ narrative – a driver of macro markets for well over a year – faces an increasingly uphill battle, given risks to growth on both sides of the Atlantic. We think US Treasuries will benefit the most from a rethink of the narrative.”
Adding to the pain, OPEC+ went ahead with hiking oil production, but on a positive note, comments from Goldman Sachs CEO David Solomon and Blackstone CEO Steve Schwarzman were optimistic about the strength of the US economy and they see little chance of recession.
North of the border, the loonie fell against the dollar, and Canadian prime minister Justin Trudeau was quick to announce retaliatory tariffs on $107 billion of US goods with a further $135 billion to be affected later in the month. The S&P TSX Composite index was down 1.5%, its largest loss since December.
“Our tariffs will remain in place until the US trade action is withdrawn, and should US tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures,” Trudeau said.
Canadian Chamber of Commerce public policy chief, Matthew Holmes, said that it would be a “long road back to Canada and the US being trusted economic partners again,” noting that businesses cannot switch business models around tariffs on the whim of politicians.
Ontario premier Doug Ford said his province would do whatever it takes to protect its economy including “cutting off their energy — with a smile on my face” if the US tried to “annihilate” it.
Further tariffs to match those other countries impose on US goods are still to come in April and Trump is due to address Congress today to set out his priorities for the next few years – expect more fireworks!
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