Tariff Threats- January 20th, 2025 – January 26th, 2025

Tariff Threats- January 20th, 2025 – January 26th, 2025

Weekly Digest 

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January 20th, 2025 – January 26th, 2025

 
 
 

CANADA INFLATION READING

Canada’s headline inflation fell to 1.80%. The Bank’s preferred CPI-trim and CPI-median core measures, which adjust for tax changes, rose by 0.3%.

 

The GST holiday has also skewed numbers and will continue to alter data for the next reading. Only one fifth or so of the GST holiday, which began on 14th December, would be captured by the CPI surveys. 

 

What happens next?

It still seems likely that the Bank will cut by 0.25% again next week. The recent pick-up in inflation pressures is partly due to the weakening of the loonie, which is now in turn related to the threat of tariffs from the US. This is different than prior readings which focused on domestic factors. Even if President Donald Trump does not follow through with his most recent threat to impose a 25% tariff on Canada on Feb 1st, our economy would still benefit from additional monetary support. 

 

While the Bank has repeatedly expressed concerns about slack in the economy, growth has clearly started to accelerate. Monthly GDP data for October and the preliminary November estimate point to fourth-quarter growth picking up to 2%.

 

Rate Odds For Next Week

For the Bank of Canada meeting on Jan. 29:

  • 25 bps cut: 80% chance
  • No change: 20% chance

 

For the Federal Reserve meeting on Jan. 29:

  • 25 bps cut: 1% chance
  • No change: 99% chance

 

Tariff Talk

For Canadians, one way to monitor the rate effects of Trump’s tariff threats is to watch bond yields. They’ll provide the most immediate sense of near-term rate direction as trade news continues to flow out of Washington.

There was widespread fear that Trump would slap a 25% tariff on his first day in office this week, but now he has stated he is waiting until February 1st.  He accused Canada of “allowing vast numbers of people…and fentanyl” over the border.

The consequences of a 25% tariff on Canada alone would be devastating. The loonie would plunge, but probably not by enough to fully offset the tariff. That means US prices for Canadian goods would rise significantly and there would be greater scope for substitution, making US demand more elastic. Even if the loonie weakened by enough to offset the tariff, such a sharp depreciation would raise the cost of Canada’s imports significantly and weigh heavily on investment and consumption. In this 25% tariff scenario, GDP would fall by somewhere in the region of 3%, triggering a recession.

The President also called Canada “a very bad abuser”. If Tariffs were imposted, Canada would fight back with retaliations on goods made in swing states as a starting point.

Trump will reportedly sign a general trade memo that directs federal agencies to analyze Canada’s (and other countries’) trade relationships with the U.S.

 

More Borrowers Choosing Variable Rates

25% of mortgage clients chose variable rates in November, according to the latest data from the BoC. That’s the largest variable share in over two years. The average, going back to 2013, is 24%. If tariffs cause overnight index swaps to suddenly price in meaningfully more cuts, we could soon see variable-rate originations increase to over 35%.

Banks are now adjusting, and removing deep discounts off of their variable rate products. Prime – 1% was a standard insured mortgage for the last 2 years, this is now sitting at Prime – 0.80%.

Conventional discounts are less aggressive as well sitting at approx. Prime – 0.50%.

 

Criminal Interest Rate Reduced

As of January 1, 2025, the criminal interest rate was reduced to a cap of 35% APR  (Annual Percentage Rate). Prior to these amendments, the criminal rate of interest was capped at 48% APR.

APR includes all costs to close the loan.

Example in a purchase deal, the APR would include the annual interest rate charged, legal fees, appraisal fees and any lender fees charged to originate the deal.

Pay day loan companies have made a living straddling the line to have their products as close to the max APR as possible. This is a big win for consumers and will drop fees and interest rates on new loans and private mortgages.

 

Current Interest Rates

CONVENTIONAL

  • 5 year fixed, 30 yr amortization – 4.54%
  • 3 year fixed, 30 yr amortization – 4.44%
  • 2 year fixed, 30 yr amortization – 5.74%
  • 5 year variable, 30 yr amortization – Prime – 0.50% = 4.95%
  • 5 year fixed, 25 yr amortization – 4.54%
  • 3 year fixed, 25 yr amortization – 4.44%
  • 2 year fixed, 25 yr amortization – 5.64%
  • 5 year variable, 25 yr amortization – Prime – 0.60% = 4.85%

 

INSURED

  • 5 year fixed, 25 yr amortization – 4.49%
  • 4 year fixed, 25 yr amortization – 4.49%
  • 3 year fixed, 25 yr amortization – 4.19%
  • 5 year variable, 25 yr amortization – Prime – .80% = 4.65%

 

Fast Facts

  • 271,000,000 – Bottles of Champagne that were shipped from France last year, down nearly 10% from 2023. It’s the second straight year that bubbly sales have been in decline.
  • 40 – Years of student records from the TorontoDistrict School Board that were hacked, exposing ~1.49 million students’ data. Other schools in Canada have also potentially been exposed.
  • 82,000 – The number of new homes started in Ontario last year, which is just 40% of what it needed to keep up with population growth.
  • 7 – The number of facilities Amazon has in Quebec, all of which will be shutting down.