Market Watch: March 14

U.S. equity markets fluctuated as political turmoil and trade uncertainties weighed on sentiment, but experienced a brief rebound midweek driven by tech gains and rate-cut expectations as U.S. headline Consumer Price Index (CPI) inflation eased to 2.8% year-over-year while the Producer Price Index (PPI) was unchanged. Canadian markets were pressured by trade tensions with the U.S., but a relief rally mid-week on the heels of a rate cut from the Bank of Canada (BoC) helped claw back some of the losses. European equities faced volatility from tariff concerns, U.S. recession risks, and weak Chinese inflation data, though defense and pharma stocks provided some support. In China and emerging markets, deflationary pressures and weak demand indicators, despite government subsidies, dampened market performance, with additional strain from U.S. tariff threats and sluggish credit growth.

Highlights:

U.S. markets returned -2.23%¹ for the week, with markets fluctuating due to political turmoil and trade uncertainties, with a midweek rebound driven by tech gains and rate-cut expectations.
Canadian markets returned -0.72%² for the week as trade tensions with the U.S. pressured markets, with some relief being provided by the BoC’s 25 basis point (bps) rate cut to 2.75%.
European markets returned -1.08%³ for the week, facing volatility from tariff concerns, U.S. recession risks, and weak Chinese inflation data, though defense and pharma stocks provided some support.
Emerging markets closed -1.03%⁴ lower for the week as deflationary pressures and weak demand indicators, despite government subsidies, dampened market performance, with additional strain from U.S. tariff threats and sluggish credit growth.

Bonds benefit from safe haven flows

U.S. rates declined early in the week amid safe haven flows, but rose later as inflation data came in lower than expected, strengthening the case for the Fed to hold rates steady. Canadian rates followed a similar pattern, with the Bank of Canada cutting its policy rate due to trade tensions. European rates were volatile, initially spiking on borrowing expectations but later declining. Credit spreads widened throughout the week, with new issuance facing challenges due to market volatility.

Highlights:

The 2-year U.S. Treasury yields was flat while the 10-year yield was X basis points (bps) higher. In Canada, the 2- and 10-year yields were 7 bps and 2 bps lower, respectively. Bond yields and prices move inversely to one another.
S. Treasurys likely won’t move much until the Federal Open Market Committee (FOMC) decision and Chairman Powell’s press conference this coming Wednesday. Canadian and European rates also moved higher late-week with German bunds underperforming.
Credit spreads have been drifting wider with the broader risk off tone and are entering the range from last August. The primary market slowed later in the week as investors are staying on the sidelines.

Weekly dashboard

Bank of Canada cuts key rate to 2.75% as trade war rattles economy

The Bank of Canada (BoC) cut its key interest rate by a quarter-percentage point and warned of an impending economic downturn as the trade war with the United States rattles consumer and business confidence. The widely expected move lowers the benchmark policy rate to 2.75%. This was the bank’s seventh consecutive cut since it began easing monetary policy last summer as pandemic-era inflation faded.

Highlights:

“We ended 2024 on a solid economic footing. But we’re facing a new crisis,” Governor Tiff Macklem said. “Depending on the extent and duration of new U.S. tariffs, the economic impact could be severe. The uncertainty alone is already causing harm.”
Macklem said the bank lowered interest rates to help cushion the impact of trade volatility. However, he said the bank would “proceed carefully with any further changes to our policy rate” given the challenges of balancing the downside risk to economic activity with the upside risk to inflation caused by tariffs.

U.S. inflation hit 2.8% in February, less than expected

Inflation in the U.S. cooled last month. While a welcome development, the latest data may offer less comfort to American businesses, consumers, and the U.S. Federal Reserve policymakers than it otherwise would because tariffs are threatening to raise some prices in the months ahead.

Highlights:

The U.S. Labor Department reported that consumer prices were up 2.8% in February compared to a year earlier, compared to a 3% gain in January. Economists had expected a 2.9% gain.
Prices excluding food and energy categories, the so-called core measure economists watch to better capture inflation’s underlying trend, rose 3.1%. Economists had expected 3.2%.
The report largely predates President Trump’s recent tariff actions, which means the full effect of the new tariffs has yet to be captured, and economists, struggling to keep up with the recent tariff news, are pushing up their inflation estimates.

German industrial production rose at start of 2025

Industrial production in Germany showed tentative signs of improvement at the start of the year, though that could be threatened by U.S. trade tariffs. German statistics agency Destatis reported output increased 2.0% on month in January compared with a 1.5% decline in the final month of 2024. Economists had expected a 1.5% increase in January. There are signs the industrial recession of recent years is fading. The less volatile quarterly comparison showed that production from November to January was stable compared with the prior three months.

Highlights:

January’s output rise was driven by the automotive industry, where production jumped 6.4%. Production in the energy-intensive industry, which has recently struggled under high energy costs, also increased.
Meanwhile, fiscal stimulus announced by Germany’s likely next chancellor, Friedrich Merz, last week could bring an upswing, spurred especially by a boost in defence spending.
Manufacturing capacity utilization is at lows comparable only to those seen during the 2008 financial crisis and the initial pandemic lockdowns. Order books shrank again in January with particularly weak foreign demand, and inventory levels remain elevated.

^{1 S&P 500 Index CAD}
^{2 S&P/TSX Composite Index CAD}
^{3 Bloomberg Developed Markets ex N. America Large & Mid Cap Price Return Index CAD}
^{4 Bloomberg EM Large & Mid Cap Price Return Index CAD}

by Scotia Wealth Management

For local news delivered daily to your email inbox, subscribe for free to the rdnewsNOW newsletter here. You can also download the rdnewsNOW mobile app in the Google Play and the Apple App Stores.

Market Watch: March 14

Week in Review

Bonds benefit from safe haven flows

Weekly dashboard

Bank of Canada cuts key rate to 2.75% as trade war rattles economy

U.S. inflation hit 2.8% in February, less than expected

German industrial production rose at start of 2025

This Week in Flyers

This Week in Flyers

What's Trending