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Trade Tensions and Volatility: The Impact on North American Markets

March 11, 2025 (Investorideas.com Newswire) Investorideas.com, rated as a top 100 investment website for investing ideas, issues market commentary from Quasar Elizundia, Expert Research Strategist at Pepperstone.

"As the week progresses, pressures on risk assets remain, and uncertainty stays elevated. President Trump's decision to raise tariffs on steel and aluminum from Canada to 50%-in response to Ontario's electricity tax on exports to the U.S.-has heightened tensions on the trade front, immediately impacting the main U.S. stock indices. Both the Nasdaq and the S&P 500 posted significant declines of 0.7% and 0.8%, respectively, reaching their lowest levels since the third quarter of 2024.

This context has reopened doubts about the strength of U.S. equities in an environment marked by tougher rhetoric and fears of potential trade retaliation. The tariff escalation from Washington against Ottawa and the possible Canadian response with more taxes or restrictions worsen growth prospects for both the U.S. and Canada and could prolong financial market volatility.

It is no surprise, then, that the Canadian dollar has suffered a sharp decline, becoming the worst-performing currency among major currencies following the recent announcements. The outlook for Canada and the Canadian dollar is challenging, especially with the upcoming Bank of Canada decision, which plans to cut its interest rate from 3% to 2.75% (-25 basis points) tomorrow amid signs of labor market weakness and trade war uncertainty.

This contrast is notable compared to the Mexican peso's situation, which has maintained a stable performance thanks to President Sheinbaum's less confrontational stance, aimed at avoiding a direct clash with the White House and easing tensions.

In the near term, investors are closely watching the release of the U.S. inflation figures, scheduled for tomorrow. A slight downward adjustment is expected, with headline inflation around 2.9% (down from 3%) and core inflation at approximately 3.2% (down from 3.3%) for February. These figures could be key in shaping expectations regarding Federal Reserve monetary policy, as any upside surprise in inflationary pressure could prompt a reassessment of the recently more accommodative outlook on the interest rate trajectory.

Regarding the equities market, views remain divided, with some investors betting on a temporary correction and seeing an opportunity to 'buy the dip', while others fear that the risk of prolonged trade tensions could deepen the current turbulence. With the acceleration of tariff measures and declining consumer confidence, we could see downward revisions in growth estimates for the North American region. This, in turn, could lead to prolonged market volatility.

In summary, the domino effect triggered by rising trade tensions has already been felt in U.S. equities and threatens to darken the continent's economic outlook. Looking ahead, investors must closely monitor how trade disputes evolve, as well as the stances of central banks, since any change in monetary policy tone could impact market movements."

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