April 2025 market update

Introduction

Global equity markets experienced some choppiness in April as trade tensions and concerns about the health of the global economy persisted. Advanced data showed business activity slowed in many key economies, including the U.S., Europe and the U.K. Global inflationary pressures subsided. However, upward consumer price pressures could come amid extensive tariffs.

 

An advanced estimate showed the U.S. economy contracted at an annualized pace of 0.3% over the first quarter of 2025, while China’s economy grew by 5.4% year-over-year. Europe’s economy grew by 0.4%. The Bank of Canada (“BoC”) held its policy interest rate steady at its April meeting, while the European Central Bank lowered interest rates by another 25 basis points.

 

The S&P/TSX Composite Index finished higher over April, supported by the Consumer Staples sector. U.S. equities declined. The yield on the 10-year Government of Canada bond increased over the month, while the yield on 10-year U.S. Treasuries ticked lower. The price of oil declined amid demand concerns and rising production. The price of gold increased, reaching a new record high during April.

 

Canada’s labour market comes under pressure

Canada’s labour market weakened in March, showing signs that trade tensions could weigh on jobs. Canada’s economy lost 32,600 jobs in March, which marked the first month of job losses since July 2024. Job losses were concentrated in the full-time sector, which shed 62,000 jobs. Conversely, the part-time sector added 29,500 jobs over the month. High job losses were seen in the retail trade and recreation industries. Canada’s participation rate also moved lower. Given the weakening job market, Canada’s unemployment rate edged higher to 6.7% in March, its highest level since last December. Canada’s job market is expected to struggle under the weight of tariffs from the U.S. After the implementation of automotive tariffs, Unifor announced temporary layoffs across several manufacturing plants. The persistence of automotive tariffs could weigh heavily on Canada’s automotive manufacturing sector.

 

The BoC is closely monitoring the impacts of tariffs. Canada’s central bank held its benchmark overnight interest rate steady at 2.75%, after seven straight rate cuts. The BoC expects inflation to increase in the coming months as tariffs take hold. Trade tensions with the U.S. are weighing on economic conditions. The federal election took place at the end of April, with Mark Carney remaining the Prime Minister of Canada. Prime Minister Carney will be tasked with navigating Canada’s economy through this difficult period and reaching a trade truce with the U.S. He ran on a campaign of being able to work with U.S. President Donald Trump, but also lessen Canada’s reliance on the U.S. and increase interprovincial trade.

 

U.S. inflationary pressures subside, but gold prices surge

For the second consecutive month in March, the annual inflation rate in the U.S. slowed. The U.S. inflation rate fell to 2.4% in March, which was the slowest pace of inflation since September 2024. The slowdown was driven by a drop in gasoline prices, while shelter price growth slowed. This was welcome news for U.S. households, who are facing an uncertain economic environment as tariffs come into effect. The personal consumption expenditure price index fell to 2.3% in March. Economic activity also slowed, with the U.S. economy contracting by 0.3%, annualized, over the first quarter of 2025. A surge in imports ahead of tariffs drove the contraction. Consumer spending softened amid weaker consumer confidence. The declining economic conditions are raising bets the U.S. Federal Reserve Board (“Fed”) may lower interest rates at its next meeting. U.S. tariffs have been met by retaliatory tariffs, which are weighing on U.S. economic activity. Furthermore, escalating tensions with China are worrying investors that the U.S. economy could enter a recession. Heightened tensions between President Trump and the Fed also made investors nervous. Amid the uncertainty, investor confidence has been shaken, leaving them to seek a safe haven asset. Despite lower inflation in the U.S., investors have turned to gold, which reached new record highs over the month, at one point reaching an intraday high of over US$3,500. The price of gold has risen by more than 25% this year. This has helped the Materials sector deliver the strongest return on the S&P/TSX Composite Index in 2025. As uncertainty and volatility persist, gold could see more record highs.

 

Reciprocal tariffs go into effect

The global trade battle escalated in early April, raising concerns about the health of the global economy. On April 2, President Trump announced reciprocal tariffs against any other country that imposes tariffs on the U.S. This would also include a baseline amount of 10%. Canada and Mexico were spared from reciprocal tariffs. However, they saw tariffs of their own from the U.S. Several countries, including Japan, South Korea and Italy, reached out immediately to try to find a resolution and have tariffs removed. With several countries seeking to make a deal, President Trump paused the reciprocal tariffs for 90 days. President Trump also announced a 25% tariff on all automobile imports, which caused a commotion within the industry. Canada retaliated with automotive tariffs of its own. The North American automotive supply chain is highly integrated. These tariffs are expected to have a significant impact on the industry. While President Trump scaled back some of those automotive tariffs later in the month, the impact will still be felt by the industry. Over the month, trade tensions with China escalated, with both countries matching each other tit-for-tat in tariffs. While pulling back on some key goods, such as electronics, both countries refused to give in, raising concerns that the global economy could be headed for a recession. While global markets get a breather from reciprocal tariffs, there are still some in place that are expected to stunt growth. The apparent openness of the U.S. to negotiate a deal provides some relief that higher tariffs may be avoided.

 

China posts relatively solid growth

Just as tariffs were taking hold and expected to drag down global economic activity, China’s economy showed some resilience in the first quarter, expanding by 5.4% year-over-year. This matched the pace of growth from the fourth quarter of 2024, which was the fastest since the second quarter of 2023. The economy was buoyed by a surge in exports. This came as the U.S. and other countries frontloaded orders ahead of a potential trade war. Relatively robust retail sales also helped buoy growth over the quarter. Looking at March, retail sales grew by 5.9% year-over-year, which was ahead of estimates and was the fastest pace of annual growth since December 2023. At its April fixing, the People’s Bank of China (“PBOC”) held its loan prime rates steady in response to solid economic growth. Despite solid first-quarter growth, the government and PBOC expected trade tensions with the U.S. to begin weighing on economic activity as soon as April. This has escalated calls for more stimulus measures. Late in April, Beijing announced it would maintain its spending measures and is willing to add new spending if warranted by waning economic conditions. If the trade battle with the U.S. persists, more stimulus measures may be needed, with the tariffs from both countries expected to stunt trade activity and pull down overall economic growth.

 

Canada Life Investment Management Ltd., Canada Life and designs are trademarks of The Canada Life Assurance Company. 

 This commentary represents Canada Life Investment Management Ltd.'s views at the date of publication, which are subject to change without notice. Furthermore, there can be no assurance that any trends described in this material will continue or that forecasts will occur; economic and market conditions change frequently. This commentary is intended as a general source of information and is not intended to be a solicitation to buy or sell specific investments, nor tax or legal advice. Before making any investment decision, prospective investors should carefully review the relevant offering documents and seek input from their advisor. You may not reproduce, distribute, or otherwise use any of this article without the prior written consent of Canada Life Investment Management Ltd.