Yann Furic
B.B.A., M. Sc., CFA®
Senior Portfolio Manager, Asset Allocation and Alternative Strategies
Since early 2025, the word “tariff” has been omnipresent in the media, and there have been countless announcements and false starts. Most tariffs have been in place since August 9, but it will take a few more weeks or months to fully grasp their overall impact.
TARIFFS. AGAIN AND AGAIN
What portion of the tariffs is absorbed by the producer, the buyer, or the customer? The real impact is yet to be seen. For some products, like steel and aluminum, which have been subject to tariffs for several months, users such as Ford, John Deere, and other manufacturers were able to quantify the negative monetary impact of the new measures during their quarterly conference calls. For others, a significant increase in non-tariffed imports early in the year has allowed them to avoid these impacts for the time being.
In some cases, companies have absorbed a large portion of the added cost, pending a better assessment of how long it will be in place. It’s therefore possible that a uniform minimum tariff of 15%, which would remain a source of revenue for the U.S. government, could lead to price increases for customers. So we could see additional inflationary pressure in the coming months. This fear of a resurgence of inflation explains the wait-and-see attitude of most central banks, particularly the Fed, which are currently standing on the sidelines.
Example of the effect of tariffs: the automotive sector
- The increase in the price of imported auto parts is expected to have a direct impact on the cost of auto insurance, since repairs will be more expensive.
- In order to stay within their budgets, more consumers are turning to used vehicles, which have become scarcer since the production problems experienced during the pandemic.
- The cost of insurance and the cost of used vehicles are components of the consumer price index (CPI).
- A rise in consumer prices can lead to higher wages in order to maintain purchasing power, which in turn could exert a second round of inflationary pressure.
BUSINESS FINANCING: A MYTH TO RECONSIDER
In the media, it is often mistakenly reported that buying shares of a company on stock exchanges, such as the TSX in Canada or the NYSE in the United States, finances the company in question. In the vast majority of cases, this statement is incorrect. When an investor buys a share of Apple, for example, it is because there is a seller of that share: it is therefore a transaction in which the company is not involved. An example in Canada: the last time Royal Bank (RBC) issued shares was in 2008, during the financial crisis, 17 years ago…
On the other hand, many companies buy back their shares. This means that when shares are sold, it may be the company itself that is involved in the transaction, through a broker.
When an investor holds a share, it represents a stake in the future of the company, not financing for the company. There are, of course, certain specific cases where an investor buys newly issued shares from a company, and in that case, it is indeed financing.
As for bonds, since they have a maturity date, it is not uncommon to buy a new issue and thus finance the company or the government in question.
WHY SHOULD A CENTRAL BANK REMAIN INDEPENDENT?
Simply put, the role of a central bank is to control inflation and, in the case of the U.S. Federal Reserve (Fed), to also maximize the level of employment.
Central banks mainly control short-term rates.
- In Canada, the most common mortgage term is 5 years.
- In the United States, it is 30 years.
- The 10-year rate is a benchmark for business financing in general.
Normally, long-term rates are set based on economic growth, the relative stability of inflation, and the fiscal responsibility of the government concerned. A government that wants to force its central bank to lower rates when inflation is high and it is running an excessive deficit will end up with rising long-term rates, despite the reduction in short-term rates.
This is the situation that Liz Truss’s government found itself in in England in 2022. The current pressure exerted by the U.S. administration on the Fed could have a smaller negative effect.
It should be added that when a central bank lowers its rates in the face of inflation, the country’s currency may be weakened. Turkey, whose central bank is not independent, provides a good example of the negative effect that such a stance can have on the currency.
OVERVIEW OF GLOBAL EQUITY MARKETSAll percentages are in Canadian dollars. |
||||
|
Country |
Index |
Return |
Change |
Year-to-date return in 2025 |
|
Canada |
S&P/TSX |
4.96% |
|
17.59% |
|
United States |
S&P 500 |
1.32% |
|
5.76% |
|
|
Nasdaq |
0.94% |
|
6.53% |
|
International stock markets |
EAFE |
3.54% |
|
17.22% |
|
Emerging markets |
|
0.58% |
|
13.62% |
|
China |
MSCI China |
4.21% |
|
23.19% |
The return shown is the total return, which includes the reinvestment of income and capital gains distributions
Source : Morningstar Direct.
RETURN ON CANADIAN BONDS |
|
| Index | Return from January 1 to August 31, 2025 |
| FTSE Canada Universe Bond Index | 1.07% |
Source : Morningstar Direct
Data influencing the markets
CANADA |
UNITED STATES |
Recession Indicator |
|
Moderate |
Moderate |
Policy Rates |
|
2.75% |
4.25% – 4.50% |
|
Inflation remained within its target range. Uncertainty surrounding the imposition of tariffs by the United States could change monetary policy and lead to additional rate cuts. GDP growth was negative in the second quarter. Currently, markets are anticipating one or two more rate cuts in 2025.
|
On July 30, the U.S. Federal Reserve (Fed) kept interest rates at their current levels. The inflationary impact of U.S. tariff policy will likely limit rate reductions in 2025, but weak growth in employment opens the door to cuts. Fed Chair Jerome Powell mentioned that uncertainty regarding inflation and employment has increased. Markets are hoping for an announcement of a rate cut at the Fed’s next meeting on September 17. Between one and three rate cuts are expected by the end of the year.
|
Employment Situation |
|
|
Jobs created: -66,000 Expectations: 5,000 |
Jobs created: 22,000 Expectations: 75,000 |
|
Wage growth: 3.6% Expectations: 3.4% |
Wage growth: 3.7% Expectations: 3.8% |
|
Unemployment rate: 7.1% Increase: +0.2% |
Unemployment rate: 4.3% Increase: +0.1% |
|
59,700 part-time jobs and 6,000 full-time jobs were lost.
|
The employment data for the previous month were revised downward. As was the case last month, there were job losses in the manufacturing sector.
|
Inflation |
|
|
July: 1.7% Decrease: 0.2% |
July: 2.7% Change: 0.0% |
Overall, what are the economic indicators telling us?
Benchmark rates (Canada, Europe and the United States) 
- The standoff between the White House and the Federal Reserve continues. Weak job creation over the past several months has opened the door to lower interest rates, despite inflation exceeding the target. Fears of a resurgence of inflation in the United States as a result of tariff policies could limit rate cuts.
- In contrast, Canada and Europe are facing tariff threats, and their lower inflation rates are allowing their central banks to maintain or further lower their rates. They are currently waiting to see the effects of these tariffs before determining what action to take.
Global Purchasing Managers’ Index
- Manufacturing segment: up, with more than half of the 30 countries in this segment posting a reading above 50 (expansion).
- Services segment: continues to hold steady and remains robust.
Inflation rate
- Overall: down, continuing to move in the right direction, but the rate of deceleration continues to weaken.
Factors to watch
-
Reduction of regulation in various industries in the United States: this should help maintain economic growth and encourage investment. Other countries, such as Canada, will have to follow suit or risk losing competitiveness.
-
Trade war: supported by the indiscriminate use of tariffs, this could cause an economic slowdown and increase inflation. This situation could lead to an episode of stagflation, the most negative economic scenario.
-
Inflationary scenarios: if they result in keeping yields on five-to-ten-year maturities at high levels, they should be avoided at all costs, as they would slow business investment and the reshoring of production lines to the United States.
-
Geopolitical uncertainty: Russia-Ukraine war, regional conflicts in the Middle East, tensions between the U.S. and China, possible annexation of Taiwan by the Chinese government, and tensions between India and Pakistan.
fdp tactical views – August 2025
-
- We maintained the weighting of equities in the tactical allocation strategy.
- Economies are slowing but are still growing. Large U.S. companies are posting solid earnings, which is keeping the stock markets in positive territory.
- In the United States, we maintained our weighting in equities and our position in large-cap growth stocks, which respond positively to stabilizing interest rates, and in stocks with a track record of dividend growth which are more defensive.
- We reinvested more heavily in Europe and reduced our weighting in Japan.
- In the fixed income component, we maintained our weighting in bonds and continue to hold Canadian bonds with maturities of 7 to 10 years. We hold various types of credit through U.S. bonds and emerging market government issues.
We continue to favour stocks in developed countries and focus on risk management.
To learn how our funds performed:
Senior Manager, Asset Allocation and Alternative Strategies
Data source : Bloomberg
The opinions expressed here and on the next page do not necessarily represent the views of Professionals’ Financial. The information contained herein has been obtained from sources deemed reliable, but we do not guarantee the accuracy of this information, and it may be incomplete. The opinions expressed are based upon our analysis and interpretation of this information and are not to be construed as a recommendation. Please consult your Wealth Management Advisor.
