Daily market snapshot

• U.S. equity markets stumble – U.S. stocks were down today, led by a 15% decline in Tesla* after President Trump threatened to cancel government contracts and subsidies for the auto and clean energy company*. This undermined a market rally seen earlier in the day following reports of a constructive phone call between U.S. President Trump and Chinese President Xi Jinping on trade. Trump commented after that "we're in very good shape with China and the trade deal", helping to raise hopes that we may see a further cooling in trade tensions between the world's largest economies. These sentiments helped support a generally better tone in international equity markets, with Canadian and European stocks delivering small gains by their respective closes. U.S. government bond yields meanwhile ended the day modestly higher, consistent with the small increases in yields seen across most sovereign bond markets.
   
• Signs of the trade war becoming clearer in U.S. data – The surge in U.S. imports seen in early 2025, as companies looked to front run tariffs, is starting to reverse.* A collapse in imports in April triggered a significant tightening in the U.S. trade deficit, which is likely to be sustained over the coming months. This should deliver a material boost to second-quarter U.S. GDP growth, in our view, but looking through this volatility, the economy appears to be feeling the effect of dramatic shifts in trade policy. Initial unemployment insurance claims increased again last week, and continuing claims remain high, potentially pointing to a cooling labour market. Similarly, according to Challenger, job-cut announcements continue to run at elevated levels, with more sectors reporting layoffs. These data appear to be adding to uncertainty around the health of the labour market ahead of tomorrow's U.S. nonfarm-payrolls report.
   
• Jobs data in focus – Markets will be watching the U.S. labour report tomorrow carefully for signs that the cracks emerging in ADP hiring data and unemployment-insurance claims this week are visible in the benchmark labour-market release. The consensus is for payroll gains to slow in May, but remain relatively healthy at 125,000, and for the unemployment rate to be unchanged at 4.2%.* However, in our view, a downside surprise would be a concern for the Fed, which has taken comfort from the resilience of the economy in 2025 thus far, especially should inflation data start to accelerate in the coming months as we expect. Against this challenging backdrop we think the Fed will remain on hold until September before cutting rates, consistent with market pricing* at present.

James McCann
Investment Strategy

^*Bloomberg

• Stocks finish mixed following Bank of Canada interest-rate decision – Canadian equity markets closed modestly lower following the Bank of Canada's (BoC) decision to hold its policy rate steady at today's meeting.* South of the border, the U.S. ADP private-payroll survey showed that private payrolls expanded at a lower-than-expected pace in May, perhaps signaling softening labour-market conditions.* In addition to the soft U.S. jobs data, the ISM services PMI for May was below expectations, falling to 49.9 and signaling that activity stagnated in the services sector of the U.S. economy last month.* Bond yields were little changed in Canada, while U.S. bond yields declined in response to the softer-than-expected economic data, with the 10-year U.S. Treasury yield finishing the day around the 4.36% mark.* U.S. equity markets were little changed, with the S&P 500 finishing near the flatline and the Nasdaq posting a modest gain.* Overseas, European markets traded higher ahead of Thursday's European Central Bank interest-rate decision, while markets in Asia were mostly higher overnight.*
   
• Bank of Canada holds rates steady – As expected, the Bank of Canada held its overnight rate steady at 2.75% in today's meeting.** While headline inflation rose by a modest 1.7% annually in April, measures of core inflation, such as CPI-trim and CPI-median, posted annual gains in April of over 3%, perhaps signaling that core-price pressures remain persistent.* In its press release, the BoC acknowledged that these measures of core inflation moved higher in April, supporting the case to maintain the policy rate at 2.75%.** The BoC also acknowledged the better-than-expected first-quarter GDP reading, although much of this was attributable to a pull-forward of exports to the U.S. to front-run tariffs.** Measures of domestic demand were more subdued, with household consumption growing by a modest 1.2% in the first quarter and investment contracting by 3%, driven by weakness in residential investment.* With the boost from exports unlikely to be repeated in the months ahead, we expect Canadian GDP growth to slow in the second quarter. Under this backdrop, we believe the BoC will continue easing policy in 2025, perhaps delivering an additional one to two rate cuts before year-end.
   
• U.S. jobs data in focus – Labour-market data is front and center for markets this week, with the U.S. ADP private-employment survey for May showing that private payrolls expanded by 37,000, well below expectations for a gain of 130,000 and the lowest monthly gain since March 2023.* The softer-than-expected jobs growth from this morning's report could provide some early evidence that firms are beginning to exercise caution when it comes to hiring amid the uncertain policy and economic backdrop. However, the ADP data follows a better-than-expected JOLTS job openings report yesterday, which showed that U.S. job openings rose to 7.4 million in April, modestly above the March reading of 7.2 million.* While the data is backward-looking, the uptick in job openings suggests that demand for labour remains healthy, in our view. Our expectation is for labour-market conditions to ease from current levels as economic growth potential slows amid the uncertain policy backdrop. But given the U.S. labour market is entering this period from a position of strength, we expect any softening over the coming months to be orderly. Friday will provide a read on trends in the domestic labour market with the release of the labour force survey for May.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **Bank of Canada June 4, 2025, Monetary Policy Decision}

• Nasdaq leads stocks higher – The TSX and U.S. equity markets closed higher on Tuesday, with technology and energy stocks leading to the upside. On the trade front, President Trump signed an executive order doubling steel and aluminum tariffs to 50%.* The Trump administration has also reportedly requested that countries provide their best offers on negotiations by tomorrow, as officials look to accelerate talks ahead of the 90-day tariff pause ending on July 9.* Bond yields rose, with the 10-year Government of Canada yields at 3.26% and the 10-year U.S. Treasury yield at 4.45%.* The Bank of Canada concludes its June monetary-policy meeting tomorrow, with markets widely expecting the central bank to hold its policy rate steady at 2.75%.* In international markets, Asia finished mixed overnight, as China's manufacturing activity fell sharply into contraction territory in May*. Europe was up modestly, as unemployment ticked down to 6.2% in April, as expected. Preliminary eurozone CPI inflation dropped to 1.9% in May, falling below the European Central Bank's 2% target, likely giving the central bank the go ahead to cut its policy rate on Thursday of this week, in our view. The U.S. dollar advanced against major international currencies. In commodity markets, WTI oil added to yesterday's gains on heightened geopolitical tensions as Ukraine conducted drone attacks deep within Russia. Iran also appears set to reject a U.S. nuclear proposal that would be critical to easing sanctions on the country's oil production*.
   
• U.S. job openings higher than expected – Job openings rose to 7.4 million in April, above forecasts for 7.1 million*. The number of people voluntarily leaving their jobs (quits) declined modestly to 3.2 million, while layoffs rose to 1.8 million**. These readings reflect a healthy labour market, in our view, as job openings exceed unemployment of about 7.2 million. We expect wage gains, on average, to remain above the pace of inflation, which should be supportive of consumer spending and the economy, in our view. Total nonfarm payrolls will provide a deeper look at the labour market on Friday, with estimates calling for 130,000 jobs created in May and the unemployment rate expected to hold steady at 4.2%*.
   
• U.S. manufacturing activity below estimates – New orders for manufactured goods were down 3.7% in April, modestly below expectations for a 3.0% decline, following four consecutive months of increases.* Shipments edged lower by 0.3%, while inventories were down***, reversing six months of increases, as companies drew down inputs that had been bolstered ahead of tariffs. While these readings were slightly weaker than expected, combined with other recent data, the manufacturing sector appears to be generally stable, which should help provide broader support for the economy and the labour market, in our view.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **U.S. Bureau of Labor Statistics ***U.S. Census Bureau}

• Stocks start the month higher despite further trade tension – Equity markets closed higher on Monday, as U.S. stocks reversed earlier losses following statements from China officials that the U.S. had violated the trade deal between the countries. President Trump also separately announced plans to double tariffs on steel and aluminum to 50%, effective June 4.* Energy and technology stocks led to the upside, while the industrials were the only sector down for the day. Bond yields rose, with the 10-year Government of Canada yield at 3.23% and the 10-year U.S. Treasury yield at 4.44%.* In international markets, Asia and Europe finished mostly lower on continued trade tensions. The U.S. dollar declined against major international currencies. In commodity markets, WTI oil traded higher following the OPEC+ decision over the weekend to hold output steady*.
   
• Manufacturing indexes mixed: The final S&P U.S. Manufacturing Purchasing Managers Index (PMI) for May rose to 52.0, above estimates pointing to 50.8*. Higher new orders and input inventories were key drivers behind the improvement in the reading, which remained above the key 50.0 mark, reflecting expansion for the fifth consecutive month.** The Institute for Supply Management (ISM) Manufacturing PMI for May declined modestly to 48.5, below forecasts for a rise to 49.5. Within ISM's components, supplier deliveries and new orders were the largest positive contributors, while production and inventories were the main detractors***. Manufacturers drew down input inventories, which had been bolstered ahead of tariffs. Overall, we view these readings positively, as the manufacturing sector appears to remain generally stable, helping provide broader support for the economy and labour market.
   
• Trade tensions continue – China officials refuted claims by President Trump that it had violated the trade deal between the two countries, and they countered with allegations that the U.S. had breached trade terms. President Trump also separately announced plans to double tariffs on steel and aluminum to 50%, effective June 4.* U.S. steel stocks surged on the news. The European Union vowed to respond to steel and aluminum tariffs, if implemented.* A U.S. Court of Appeals hearing is scheduled for June 9 to consider a U.S. trade-court ruling that President Trump does not have authority to impose a 10% global baseline tariff and 20% fentanyl duty on China based on the International Emergency Economic Powers Act.* Investors should be prepared for the trade tension and tariff uncertainty highlighted by these developments to continue over the coming months, in our view.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **S&P ***Institute for Supply Management}

• Stocks finish mixed to close out a solid week – The TSX closed lower, while U.S. equity markets were nearly flat on Friday despite continued trade tensions, as President Trump claimed that China has violated its trade agreement with the U.S. Treasury Secretary Scott Bessent also commented separately that trade negotiations with China have stalled.* These statements highlight the trade tensions that we expect to continue over the coming months. Canada GDP grew at a 2.2% annualized pace in the first quarter, beating forecasts for the economy to slow to a 1.4%. Higher exports were a key driver, as companies stockpiled inventories to get ahead of U.S. tariffs implemented in early April.** Consumer staples and utility stocks posted the largest gains, while the energy and consumer discretionary sectors were laggards. Bond yields fell, with the 10-year Government of Canada yield at 3.20% and the 10-year U.S. Treasury yield at 4.40%.* In international markets, Asia finished mostly lower overnight, following a U.S. appeals court reinstating certain tariffs, which had been blocked by a lower court. The U.S. dollar advanced against major international currencies. In commodity markets, WTI oil traded lower ahead of an OPEC+ decision this weekend on a potential July supply hike*.
• Fed's preferred inflation measure falls more than expected – Personal consumption expenditure (PCE) inflation declined to 2.1% annualized in April, below forecasts calling for 2.2%*. Lower goods prices, down 0.4% from a year ago, have helped offset services inflation, which has also cooled but remains elevated at 3.3%*. Shelter inflation slowed to a 4.2% pace, providing a key driver in moderating services inflation.* Core PCE, which excludes more-volatile food and energy prices, dropped to 2.5%, from 2.7% the prior month, as expected. While PCE inflation is close to the Fed's 2% target for this measure, we expect the central bank to remain on the sidelines a while longer as it gathers additional data to assess the impact of tariffs on inflation. The generally healthy labour market, with unemployment still low at 4.2% and job openings roughly in line with unemployment*, should give the Fed some more time, in our view. We expect tariffs to put some upward pressure on inflation over the coming months, as higher import costs are at least partially passed along to consumers. However, most of this impact should be near-term price hikes that aren't an ongoing driver of inflation, in our view.
• U.S. appeals court pauses trade-court ruling against tariffs – The U.S. Court of International Trade and a U.S. District Court ruled that President Trump does not have the authority to impose the 10% global baseline tariff and 20% fentanyl duty on China.* These tariffs are based on the International Emergency Economic Powers Act by declaring national emergencies caused by trade deficits and fentanyl. The Trump administration appealed both decisions and requested a temporary pause, or "stay", on their enforcement. The U.S. Court of Appeals for the Federal Circuit has granted a stay on the trade-court ruling, pending a hearing scheduled for June 9.* The District Court ruling is scheduled to go into effect on June 12, allowing time for appeals. Tariffs on steel, aluminum and autos are not affected by either court action, as they were implemented under separate trade acts. Depending on the outcome of the appeal, tariffs could remain in effect, or the Trump administration could appeal to the Supreme Court or reimpose tariffs under other statutes. These developments and the potential next steps highlight the policy uncertainty that we expect to continue over the coming months.

Brian Therien, CFA
Investment Strategy

Source: *FactSet **Statistics Canada