Business Brief: The market becomes a trust fall exercise
In the words of Gord Downie on The Tragically Hip’s 1994 song Thugs, “Everyone’s got their breaking point.” For Gord it was spiders. For U.S. President Donald Trump, it’s America losing its safe haven status among investors and risking systemic crisis.
After a week of wild gyrations in markets brought on by his worldwide reciprocal tariffs, we’ll explore the ways Trump is testing the breaking points of the global financial system. But first:
In the news
Trade: Chinese leader Xi Jinping made his first public comments today amid an escalating trade war with the United States, warning there can be no winner in such a conflict, even as Beijing ramped up tariffs on U.S. goods to 125 per cent.
Diversification: TC Energy CEO touts Asia as key to Canada’s economic diversification away from the U.S.
Retail: Bids for Hudson’s Bay Co. may include company insider, according to document
Opinion: Donald Trump is Wall Street’s Frankenstein, and the billionaires have lost control of their creation, Rita Trichur writes
In the know
TD shareholders confront bank leaders about anti-money-laundering failures at AGM
- The idea: It was the first opportunity retail investors have had to confront TD’s leaders since the bank pleaded guilty to conspiracy to commit money laundering in October.
- A quote: “The Oct. 10 public consent agreements was the darkest day that we could have imagined it to be, and I apologize to all investors for how difficult this was and the consequences of the actions,” said TD board chair Alan MacGibbon.
Telus dropped 3,300 net jobs in 2024, CEO earnings decline
- A cut: It’s the second year in a row of work force reductions at the telecom, after cutting 4,300 jobs in 2023.
- A trim: CEO Darren Entwistle had the same base salary of $1,600,000, but slightly lower share-based awards and other compensation – amounting to a total of $20.6-million, down from $21-million the previous year.
A trader at the New York Stock Exchange on April 10.Jeenah Moon/Reuters
In focus
Checking in on faith in the financial system
From the moment Trump stood in the Rose Garden on April 2 holding a large placard to announce his “Liberation Day” reciprocal tariffs, global markets have been on a stomach-churning ride – mostly downward.
Trump was upending the global trading system, sending American trade policy back to the 1930s in the process and justifying it with an almost comically-simplistic formula.
Almost comically because the consequences of his tariff plan would inevitably drive up inflation, disrupt supply chains and threaten millions of jobs. But even as stocks plummeted, marking one of the worst starts to a presidency since 1945, Trump and his advisers brushed off concerns.
That was, right up until Wednesday when Trump flip-flopped and announced a 90-day pause on his retaliatory tariffs (though not for China – its tariff was hiked to 145 per cent.)
Why Trump blinked
Trump loves few things more than bragging about his stock market performance. So as stock markets around the world tumbled, and warnings piled up from some of Wall Street’s most powerful figures that the tariffs could tip the United States into recession, Trump and his team seemed surprisingly unmoved.
That all changed when the bottom began to fall out of another market: bonds.
In times of uncertainty, investors typically flee stocks for the safety of bonds – the safest being U.S. Treasuries. For a spell this week, that pattern broke and both fell. When bonds fall, the cost to the lender to borrow money rises, and in short order the yield on 10-year Treasuries surged more than half a percentage point to the highest level since Feb. 20.
It wasn’t just that Treasury yields were rising – the opposite of Trump’s stated goal of lowering interest rates.
The bond market upheaval was widely interpreted as a sign that investors were losing faith in America’s safe haven status, and as Eric Reguly wrote, that set off alarm bells in the White House.
The confidence game
The financial system is entirely built on trust – that loans get repaid, that investor money is secure and that institutions are incorruptible. In that way, the U.S. has long anchored the modern democratic, free-market order, while U.S. Treasuries, with the full backing of the American government, underpin the global financial system. Trump’s actions have raised questions about all of that.
In the end, Trump’s 90-day pause led bond markets to calm down, though the S&P 500 resumed falling Thursday. But in addition to the market instability, investors saw plenty this week to give them pause.
- Consider this spectacle: The White House’s top trade negotiator, Jamieson Green, was struggling to field questions during Congressional testimony right at the moment Trump paused his tariff policy. “The Trade Representative hasn’t spoken to the President of the United States about a global reordering of trade yet he announced it on a tweet,” said Rep. Steven Horsford. “WTF. Who’s in charge?”
- A hot tip: Governments are usually freaked out by the idea that anyone might catch wind of market-moving policy decisions ahead of time. Then there was Trump boasting on Wednesday morning on his Truth Social site “THIS IS A GREAT TIME TO BUY!!! DJT” a few hours before using the same platform to announce his 90-day tariff pause. Did Trump know the pause was coming? It sure seems that way, suggesting market manipulation.
What’s the breaking point?
Shortly before Trump backpedalled on his reciprocal tariffs, I spoke with Karl Schamotta, chief market strategist at Corpay, about what the spike in bond yields and the falling U.S. dollar all meant.
“What you’re seeing, fundamentally, is a fading in the American exceptionalism trade,” he said.
But this week also showed the world Trump is willing to hurl boulders at the established order in ways no president has in decades, perhaps even a century.
What would it take for those boulders to break the financial system? Schamotta listed several policy moves investors are worried the Trump administration could still take:
- Interference in the Federal Reserve’s decisions on interest rates in any way, though as Rita Trichur writes, Fed chair Jerome Powell has so far defied Trump’s goading.
- Messing with economic data in some way that damages its credibility (Last month Commerce Secretary Howard Lutnick teased the idea of changing how gross domestic product is measured to strip out government spending.)
- Pursuing a dollar-weakening Mar-a-Lago Accord, which is “obviously, completely bonkers and nuts to even consider but you have to because the administration is considering it,” said Schamotta.
This week, Trump blinked. But only after testing just how far he could push the financial system before it cracked.
Charted
Avoiding America
Turns out all you need to do to eviscerate your country’s tourism industry is insult all your allies, threaten to invade their countries and launch trade wars with everyone. New Statistics Canada numbers show a 32-per-cent drop in Canadian trips to the U.S. by car, while U.S. border data shows international arrivals at major American airports are in free-fall.
Bookmarked
On our reading list
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Morning markets update
Global stocks were mixed a day after euphoria over Trump’s global tariff reprieve faded as the reality of his escalating trade war with China once again rattled financial markets and stoked fears of a broad economic downturn. This morning, Wall Street futures were in positive territory, while TSX futures followed sentiment higher.
Overseas, the pan-European STOXX 600 was flat in morning trading. Britain’s FTSE 100 rose 0.73 per cent, Germany’s DAX fell 0.7 per cent and France’s CAC 40 was little changed.
In Asia, Japan’s Nikkei closed 2.96 per cent lower, while Hong Kong’s Hang Seng climbed 1.13 per cent.
The Canadian dollar traded at 71.90 U.S. cents.