The stock markets say life would be great without the trade war.
Every trade deal U.S. President Donald Trump strikes with another country pushes stocks higher. In fact, stocks have recovered almost all the ground they lost when Mr. Trump’s tariff policies blew up in March and April, and new highs for the year seem possible.
Two months into the trade war, it’s time to take stock not only of the stock market but interest rates, the job market and other aspects of personal finance. What do you need to worry about going forward?
Stocks – 4/10 on the worry meter
Stocks could easily fall again if the trade war flares up again, particularly if there’s a feeling that high tariffs will linger or that a recession is inevitable. But for now markets seem to be optimistic about global trade and economic growth potential.
If you feel tempted to sell because of the risk of future stock market declines, remember how stocks have rallied in the past 30 days. Future setbacks could take many months or even a year or more to heal, but there’s zero evidence we are sliding into a prolonged period of stock market desolation.
Mortgage rates – 6/10 on the worry meter
People who feel that mortgage rates are too high to buy a home have little reason to be optimistic. Costs for fixed-rate mortgages are heavily influenced by what’s happening with rates in the bond market, which have been flat or edging higher in recent weeks.
The bond market reflects thinking about inflation and economic growth on one hand and the reliability of government and corporate lenders on the other. There is some degree of confusion on all sides as a result of the trade war. Notably, U.S. Treasury bonds may be losing some of their status as a global safe haven investment. If investors sell these bonds and drive prices lower, bond yields will go higher. In the bond market, prices and yields move in opposite directions.
Other interest rates – 1/10 on the worry meter
The latest job market numbers, which we’ll get to in a moment, tell us the economy is struggling against trade war uncertainty. When the Bank of Canada reviews its trendsetting overnight rate on June 4, we are likely to see either a cut or no action.
The Bank of Canada has to keep an eye on inflation, which could be fuelled by trade war tariffs. But the greater worry right now seems to be the risk of unemployment rising and the economy lapsing into recession.
Note that the 1/10 worry meter rating is for borrowers with floating rate debt such as variable-rate mortgages and credit lines. Savers may take a different view, given that Bank of Canada rate cuts flow into the returns on a wide variety of saving products.
The job market and economy – 8/10 on the worry meter
The business view of the trade war is seen in the unemployment rate for April, which at 6.9 per cent was the highest in eight years aside from pandemic disruptions. Facing uncertainty, some companies have reduced their workforces. Manufacturing and the wholesale and retail trade sectors alone lost almost 60,000 jobs.
A quick resolution to the trade war, at least on the Canadian front, would help restore business confidence and firm up the job market. But the upshot of Prime Minister Mark Carney’s recent visit to Washington is that a resolution will take time.
Every working person should consider doing a job vulnerability check. The higher the risk of job or income loss, the more urgent it is to have cash on hand to cover expenses. How much cash could you round up in an emergency to pay your living costs? That is a question you should know the answer to right now.
The Canadian dollar – 3/10 on the worry meter
Our buck hit a high for the year earlier in May against the U.S. dollar. The news isn’t as positive when the euro and some other currencies are considered, but the Canada-U.S. exchange rate is the one people think about the most.
The turnaround in the Canadian dollar isn’t huge – just a couple of cents. But it symbolizes a feeling in international investing circles that the U.S. has lost a little credibility as the global economic leader. As the U.S. buck went down, ours moved up.
We are unlikely to see much more upside for our dollar until the economy improves. But fears of a collapse in the loonie as a result of the trade war have so far been overblown.
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