TD Securities analysts highlight that ongoing Canada-US CUSMA negotiations and a deteriorating geopolitical environment are contributing to heightened macroeconomic uncertainty in Canada. Despite these concerns, they note that incremental changes in trading conditions are unlikely to significantly alter Canada's growth outlook, given manufacturing's less than 10% share of GDP and pre-existing weakness in business investment. The recent surge in energy prices has offset some negative sentiment, pushing back expectations for rate cuts in Canada. Governor Macklem is described as cautious, emphasizing high uncertainty and keeping all policy options open for the future [1].
Meanwhile, Scotiabank strategists focus on the US Federal Reserve's data-dependent approach as markets head toward the March 18 FOMC meeting. They report that recent ISM manufacturing and services data, along with softening initial and continuing jobless claims, indicate resilient US economic activity. This has led short-term rates markets to materially reduce expectations for Fed easing this year, with only about 40bps of easing priced in and no policy changes expected for the March or April meetings. A 25bps cut is not fully priced until September, reflecting both stronger economic data and the impact of the US/Iran conflict [2].
Both sources emphasize the role of geopolitical uncertainty in shaping market sentiment and policy expectations. In Canada, rising energy prices are mitigating some of the negative effects of trade uncertainty, while in the US, resilient economic data and geopolitical tensions are leading to a more cautious outlook on monetary easing. The lack of forthcoming policy statements due to the Fed's communications blackout adds to the uncertainty for US markets [2].
TD Securities suggests that unless there is a material change in Canada-US relations, the broader Canadian growth outlook will remain largely unaffected by incremental trade developments. Scotiabank notes that US markets are "flying relatively blind" ahead of the FOMC meeting, with easing expectations trimmed due to stronger data and geopolitical risks [1][2].
CONCLUSION
Market sentiment is mixed, with Canadian uncertainty offset by rising energy prices and US rate cut expectations reduced due to resilient economic data and geopolitical tensions. Both economies face heightened uncertainty, but immediate policy changes are unlikely. Investors should remain cautious as both central banks signal flexibility amid evolving conditions.