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The Bank of Canada (BoC) held its policy rate at 2.75%, following seven straight announcements where the bank cut rates.

The bank's outlook recognized that the "economy is slowing as tariff announcements and uncertainty pull down consumer and business confidence. Consumption, residential investment and business spending all look to have weakened in the first quarter. Trade tensions are also disrupting recovery in the labour market."

The BoC also published its Monetary Policy Report (MPR), which instead of outlining its forecast, showed two scenarios for the economy depending on how tariff tensions unfold. One is a temporary shock that effectively flatlines the economy, but allows it to return to growth in the second half of 2025, and inflation remains around the 2% target. The other scenario is a prolonged trade war that sends the economy into a recession through the remainder of 2025, and inflation temporarily rises to 3%.

Regarding the future path of its policy rate, the bank stated that it will "proceed carefully, with particular attention to the risks and uncertainties facing the Canadian economy." The evolution of the trade war with the U.S. will determine if the BoC will resume cutting rates in the coming months.

Key Implications

In reading the interest rate announcement and MPR, one would have thought the BoC decided to cut rates today. It highlighted the downside risks to the economy, with both scenarios showing a level of weakness that is deserving of further rate cuts. And it's not just hypotheticals and sentiment surveys showing fragility. The real estate market has rolled over as Canadians grow more hesitant. This is also coming through in retail sales, while the March jobs report showed that firms are already trimming their workforce. Inflation also eased last month, which opened the door for rate cuts today, but the BoC decided not to walk through it.

Looking forward, the BoC is expected to cut further. Market pricing for a cut in June jumped today, with about 50 bps in cuts expected over the remainder of 2025. This makes sense to us. Canada may have received a lower effective tariff rate than other countries, but the damage has already been done. Canada's economy has started to show signs of weakness, which we think will continue over the coming months. This means the BoC should resume cutting rates at its next meeting on June 4th.

Market Picture

The crypto market capitalisation fell by 2.6% in the last 24 hours, dropping to $2.63 trillion. The selling pressure intensified amid announcements that the US may raise duties on Chinese goods to 245%. This news hit fertile ground as the market had already reached the levels of the last consolidation, and after the recent rebound, a correction was looming.

Bitcoin is losing with the market, facing resistance in the form of a cluster of 50- and 200-day moving averages. The importance of these levels suggests some pause in the move, but the chances of a rebound remain high. The low point in early April was more than 30% below historical peaks, making current levels attractive to long-term buyers.

News Background

MN Trading founder Michael van de Poppe notes the growth in money supply as measured by the M2 aggregate, which he believes could lead to Bitcoin updating its record high (ATH) this quarter. Macro analyst TomasOnMarkets adds that the amount of liquidity in the financial system has increased to $6.3 trillion, creating a favourable backdrop for BTC growth.

Bitcoin reserves of publicly traded companies increased 16% in Q1 to 688,000 BTC (~$56.7bn), Bitwise calculates. Over the three months, companies built up reserves by 95,431 BTC, and at least 12 public companies invested in bitcoin for the first time.

Canada is launching the world’s first spot Solana ETFs. The funds will offer a Solana staking feature, potentially providing higher returns than similar Ethereum-based products and lowering the ETF’s cost of ownership, TD Bank said.

Markets

The calm is already over. It took two days for the trade conflict to return to the front pages and dominate trading again. It started with China banning Boeing jets, followed by EU officials returning from US trade talks without progress and ended with the US imposing additional export restrictions against chipmaker Nvidia & launching a probe into critical minerals. The latter often leads to the introduction of import tariffs. It culminated into European stocks opening with losses of up to 1.6%. Sentiment later improved abruptly thanks to Bloomberg reporting that China is open for trade talks, be it on certain conditions. They want the US to show more respect, have a consistent position and express willingness to address China’s concerns around American sanctions and Taiwan. We’ll leave it up to the reader to decide whichever is the hardest. We simply stick to the fact that talks, if any, won’t happen overnight. Chinese authorities a couple of hours later struck a more defiant tone again by the way, repeating it will “fight till the end” if its interests are harmed. Stocks nevertheless saw the bright side with the EuroStoxx50 paring losses to 0.6% currently. US stocks still open between 0.4 and 1.8% lower. The US dollar once again fails to benefit from the risk off environment in growing signs of the currency losing safe haven appeal to the likes of the euro. EUR/USD wipes out yesterday’s loss to trade around 1.135. The trade-weighted dollar index returns back sub 100, near the lowest level since mid-2023. The Swiss franc is today’s G10 outperformer. EUR/CHF revisits the 2024/multiyear lows. Sterling slips against most peers but the USD after March CPI numbers this morning basically cemented another quarterly Bank of England rate cut in May (from 4.5% to 4.25%). In fixed income German Bunds again outperform US Treasuries, snapping up the haven flows. German rates ease only slightly though with net daily changes varying between 1.1 and 2.7 bps across the curve. US yields lose a few bps at the front while adding some at the long end (risk premia).

The economic calendar today contained strong but broadly in line with consensus US retail sales. The headline figure printed 1.4% m/m, driven by a consumer rush to cars (+5.3% m/m) ahead of a 25% import tariff. 11 out of the 13 categories posted an increase, many of them for the same aforementioned reason (eg. sporting goods, electronics …). The gauge used in private consumption calculations for GDP rose by 0.4%, slightly below the expected 0.6% but with an upward revision to February (1.3% from 1%). The publication has little effect on markets ahead of a closely watched speech by Fed chair Powell later today. For most of his colleagues (except for Waller on Monday) inflation remains the number one priority and we expect Powell to hold that line as well. It could serve as a wake-up call for markets, who currently assume around 90 bps of cuts this year.

News & Views

News agency Reuters reports that the Bank of Japan will lower its growth outlook at the May 1 policy meeting as US tariffs heighten risks to the export-reliant economy. At the previous quarterly update, the BoJ projected 1.1% growth for fiscal 2025. The extent of the expected damage could depend on the outcome of bilateral negotiations which start today and which US President Trump will join in person. In an interview, BoJ governor Ueda this morning reiterated the BoJ’s dedication to raising rates at an appropriate pace, though he admitted that a policy response (pause?) may be required depending on the economic impact. When it comes to inflation, the tariff shock is expected to delay, but not derail, progress to sustainably hitting the 2% inflation target. Today’s risk aversion prompted a test of the YTD low in USD/JPY at 142.07, but a break, which opens the path to the 2024 low (139.58) was avoided for now.

The World Trade Organization (WTO) updated its trade forecasts. The temporary tariff pause mitigates the trade contraction, but strong downside risks persists. Under current conditions, the volume of world merchandise trade is likely to fall by 0.2% in 2025. The decline is expected to be particularly steep in North America, where exports are forecasted to drop by 12.6%. Chinese merchandise exports are projected to rise by 4% to 9% across all regions outside North America, as trade is redirected. In a worst case scenario (full impact reciprocal tariffs and spreading trade policy uncertainty), the global goods trade could decline by 1.5%. The volume of services trade is forecasted to grow by 4% in 2025.

BoC left its overnight rate unchanged at 2.75% today. BoC reiterated its intention to “proceed carefully,” noting a wide range of uncertainties. Key among these are the drag from US tariffs on Canadian exports, and the downstream effects on business investment, employment, and household spending. The central bank also flagged concerns about how quickly cost increases could be passed on to consumers and how inflation expectations might respond.

A central theme in the BoC’s April Monetary Policy Report is the sharp deterioration in the global trade outlook, driven by the sweeping and erratic shift in US tariff policy.

To frame the uncertainty, BoC presented two scenarios. In the first, tariffs remain "limited in scope" but high uncertainty dampens growth "temporarily", keeping inflation near the 2% target.

In contrast, the second scenario envisions a "protracted trade war" with the US, which would likely drive Canada into recession in 2025. Inflation could overshoot 3% next year.

The Bank was clear that these are not forecasts, but rather a range of plausible outcomes given the unprecedented nature of the policy shift.

Full BoC statement here.

The Bank of Canada today maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%.

The major shift in direction of US trade policy and the unpredictability of tariffs have increased uncertainty, diminished prospects for economic growth, and raised inflation expectations. Pervasive uncertainty makes it unusually challenging to project GDP growth and inflation in Canada and globally. Instead, the April Monetary Policy Report (MPR) presents two scenarios that explore different paths for US trade policy. In the first scenario, uncertainty is high but tariffs are limited in scope. Canadian growth weakens temporarily and inflation remains around the 2% target. In the second scenario, a protracted trade war causes Canada’s economy to fall into recession this year and inflation rises temporarily above 3% next year. Many other trade policy scenarios are possible. There is also an unusual degree of uncertainty about the economic outcomes within any scenario, since the magnitude and speed of the shift in US trade policy are unprecedented.

Global economic growth was solid in late 2024 and inflation has been easing towards central bank targets. However, tariffs and uncertainty have weakened the outlook. In the United States, the economy is showing signs of slowing amid rising policy uncertainty and rapidly deteriorating sentiment, while inflation expectations have risen. In the euro area, growth has been modest in early 2025, with continued weakness in the manufacturing sector. China’s economy was strong at the end of 2024 but more recent data shows it slowing modestly.

Financial markets have been roiled by serial tariff announcements, postponements and continued threats of escalation. This extreme market volatility is adding to uncertainty. Oil prices have declined substantially since January, mainly reflecting weaker prospects for global growth. Canada’s exchange rate has recently appreciated as a result of broad US dollar weakness.

In Canada, the economy is slowing as tariff announcements and uncertainty pull down consumer and business confidence. Consumption, residential investment and business spending all look to have weakened in the first quarter. Trade tensions are also disrupting recovery in the labour market. Employment declined in March and businesses are reporting plans to slow their hiring. Wage growth continues to show signs of moderation.

Inflation was 2.3% in March, lower than in February but still higher than 1.8% at the time of the January MPR. The higher inflation in the last couple of months reflects some rebound in goods price inflation and the end of the temporary suspension of the GST/HST. Starting in April, CPI inflation will be pulled down for one year by the removal of the consumer carbon tax. Lower global oil prices will also dampen inflation in the near term. However, we expect tariffs and supply chain disruptions to push up some prices. How much upward pressure this puts on inflation will depend on the evolution of tariffs and how quickly businesses pass on higher costs to consumers. Short-term inflation expectations have moved up, as businesses and consumers anticipate higher costs from trade conflict and supply disruptions. Longer term inflation expectations are little changed.

Governing Council will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs. Our focus will be on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. This means we will support economic growth while ensuring that inflation remains well controlled.

Governing Council will proceed carefully, with particular attention to the risks and uncertainties facing the Canadian economy. These include: the extent to which higher tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases are passed on to consumer prices; and how inflation expectations evolve.

Monetary policy cannot resolve trade uncertainty or offset the impacts of a trade war. What it can and must do is maintain price stability for Canadians.

Information note

The next scheduled date for announcing the overnight rate target is June 4, 2025. The Bank will publish its next MPR on July 30, 2025.

Tech stocks fell globally after the Trump administration imposed new restrictions on Nvidia’s chip exports to China, worsening trade tensions.

Nasdaq 100 futures dropped 1.5%, and Nvidia shares fell about 6% in premarket trading. ASML shares plunged over 7% after reporting fewer-than-expected orders, blaming weakness in the chip industry. European markets also felt the pressure, with the Stoxx 600 index down 0.8%.

In the European session market moves appeared more measured compared to recent swings, as hopes grew for possible talks on Trump’s reciprocal tariffs.

Gold prices are back above the $3300 handle following a brief pullback. Risks are elevated following a report that the US administration plans to make countries choose between the US and China and offer favorable tariffs as an incentive.

This came about after a brief improvement in sentiment as news filtered through that Chinese authorities are asking the Trump administration to take certain actions before agreeing to talks, including showing more respect and curbing offensive comments from cabinet members, according to a source close to the Chinese government.

China's Foreign Ministry issued a statement earlier in the day saying that If the US wants to solve issues through dialogue, it should stop exerting maximum pressure

For now, tariff developments continue to sway markets back and forth as news filters through. This will continue in the US session with President Trump confirming Japan is to negotiate today with the US regarding tariffs & the cost of military support. President Trump said he will attend the meeting himself along with treasury & commerce secretaries and hopefully something can be worked out.

Economic data ahead

The US session will bring US retail sales data into focus but the bigger news is likely to be a speech by Fed Chair Jerome Powell. The Federal Reserve has the unenviable task of planning their monetary policy and decisions in the current climate which is rife with uncertainties.

Depending on the nature of Powell's testimony, markets could react as well but any news about monetary policy is unlikely to have a lasting impact.

The Bank of Canada (BoC) interest rate decision is due later in the day with forecast split on whether the Central Bank will cut rates. Currently markets are pricing in 55% probability of a rate cut.

For all market-moving economic releases and events, see the MarketPulse Economic Calendar. (click to enlarge)

Chart of the day - Dow Jones

The Dow Jones continues to hold the high ground despite the trade tensions in play.

The index has held above the 40000 psychological level since reclaiming it on April 9. A retest in the European session occurred once more before the index pushed higher but downside pressure does remain a concern.

Immediate resistance rests at 40537 before the 40738 and 41095 handles come into focus.

Support at 40000 has held firm but a break of this key level could open up a run toward 39588, 38500 and potentially recent lows around the 36720 mark.

Dow Jones Index (DXY) Chart, April 16, 2025

Retail and food services sales jumped 1.4% month-on-month (m/m), in line with market expectations.

Sales of vehicles and parts played a big role in driving last month's gain, surging by 5.3% m/m as consumers rushed to purchase new cars ahead of the auto tariffs. Building materials and equipment stores' also posted a large increase, rising by 3.3% m/m – the largest monthly gain since March 2021. Meanwhile, sales at gasoline stations declined by 2.5% m/m, weighed down by lower gas prices.

Sales in the "control group", which excludes volatile components above (i.e., gasoline, autos and building supplies) also rose in-line with expectations, increasing by 0.4% on the month.

Sales increased across most of the remaining categories. The largest gains were in sporting goods & hobby stores (+2.4% m/m), electronics & appliance stores (+0.8% m/m), and health & personal care stores (+0.7% m/m). Furniture and home furnishings stores were the only category to post a decline. Online sales were little changed (+0.1%), but that came after a surge of 3.5% m/m in February.

Spending at bars and restaurants also rebounded last month (+1.8%), following an uneven performance in the last three months.

Key Implications

There were no major surprises in today’s report. The sharp increase in retail sales was widely anticipated, given the surge in vehicle purchases that had already been signaled earlier this month. However, cars were not the only thing selling like hot cakes in March, with consumers were stocking up on a range of goods ahead of the reciprocal tariff announcement set for April 2nd. Even sales at bars and restaurants saw an improvement last month following unsteady performance in the prior three months, with eating out perhaps complementing the shopping experience. While some of this behavior may carry over into April, it’s likely to mark a final burst of spending before consumers begin tightening their purse strings.

Consumer sentiment indicators suggest growing concern. Confidence has dropped sharply, with households increasingly worried about inflation and job security. Household wealth has also taken a hit, as the financial market selloff has eroded savings and reduced the safety cushion. Prices are expected to rise further, with inflation likely to accelerate as early as Q2. At the same time, economic growth is expected to stall through the first half of the year, accompanied by a rising unemployment rate. Today's retail reading suggests consumer spending is likely to expand by just 1% (annualized) in Q1 – a sharp slowdown from Q4-2024's 4.0% – with a further softening in Q2 spending looking increasingly likely.

Daily Pivots: (S1) 1.1238; (P) 1.1308; (R1) 1.1353; More...

EUR/USD is extending consolidations below 1.1472 and intraday bias remains neutral. Deeper pullback cannot be ruled out. But downside should be contained by 1.1145 resistance turned support to bring another rally. On the upside, break of 1.1472 will target 161.8% projection of 1.0358 to 1.0953 from 1.0731 at 1.1694.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0745) holds.

Daily Pivots: (S1) 1.3180; (P) 1.3216; (R1) 1.3268; More...

Intraday bias in GBP/USD stays on the upside at this point. Current rise from 1.2099 should target 61.8% projection of 1.2099 to 1.3206 from 1.2706 at 1.3390, and possibly further to 1.3433 high. On the downside, below 1.3204 minor support will turn intraday bias neutral first. But overall near term outlook will stay bullish as long as 1.2706 support holds.

In the bigger picture, price actions from 1.3433 are seen as a corrective pattern to the up trend from 1.3051 (2022 low). Rise from 1.2099 could be the second leg. Overall, GBP/USD should target 1.4248 key resistance (2021 high) on break of 1.3433 at a later stage.

Daily Pivots: (S1) 0.8163; (P) 0.8201; (R1) 0.8273; More…

No change in USD/CHF's outlook as consolidations continue above 0.8098. Intraday bias stays neutral for the moment. While stronger recovery might be seen, upside should be limited by 55 4H EMA (now at 0.8357) to bring another fall. On the downside, break of 0.8098 will resume recent down trend to 200% projection of 0.9196 to 0.8757 from 0.8854 at 0.7976 next.

In the bigger picture, the break of 0.8332 (2023 low) confirms resumption of long term down trend from 1.0342 (2017 high). Next target is 61.8% projection of 1.0146 (2022 high) to 0.8332 from 0.9196 at 0.8075. Firm break there will target 100% projection at 0.7382.